Retirement Planning - Modeling and Limitations

Modeling and Limitations

Retirement finances touch upon a motley of distinct subject areas or financial domains of client importance, including: investments (i.e. stocks, bonds, mutual funds); real estate; debt; taxes; cash flow (income and expense) analysis; insurance; defined benefits (e.g. social security, traditional pensions). From an analytic perspective, each domain can be formally characterized and modeled using a different class (computer science) representation, as defined by a domain's unique set of attributes and behaviors. Domain models require definition only at a level of abstraction necessary for decision analysis. Since planning is about the future, domains need to extend beyond current state description and address uncertainty, volatility, change dynamics (i.e. constancy or determinism is not assumed). Together, these factors raise significant challenges to any current producer claim of model predictability or certainty. Some might even adopt fatalism -- that the full scope of client issues, non-financial included, render the entire problem indeterminate, unsolvable, and meaningless.