WSJ Your Money Briefing - Can Financial-Planning Tools Predict Your Future?

Episode Date: January 8, 2025

A new generation of tools allows anyone to play out a range of potential financial scenarios just by plugging in numbers from their portfolio. The Wall Street Journal’s personal finance bureau chief, Jeremy Olshan, joins host J.R. Whalen to discuss the pros and cons of using these tools to predict your financial future. Sign up for the WSJ's free Markets A.M. newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Get groceries delivered across the GTA from real Canadian superstore with PC Express. Shop online for super prices and super savings. Try it today and get up to $75 in PC optimum points. Visit superstore.ca to get started. Here's your money briefing for Wednesday, January 8th. I'm JR Whalen for The Wall Street Journal. A lot of people save for the future, but it's hard to know what your finances might look like down the road due to changes in the economy or stock market. Our personal finance bureau chief

Jeremy Olshan tried to get a snapshot of his financial future by trying out the newest generation of financial planning tools. It's worth using tools like this to have conversations with your future self. The biggest net effect is that person who still feels pretty distant is more real in a way since I've run variations on where I might end up. Jeremy will join us to discuss how you can use these tools. After the break. TD Direct Investing offers live support. So whether you're a newbie or a seasoned pro, you can make your investing steps count. And if you're like me and think a TFSA

stands for Total Fund Savings Adventure, maybe reach out to TD Direct Investing. Twenty years ago, Wall Street Journal Personal Finance Bureau Chief Jeremy Alshen asked fortune tellers to predict his financial future. More recently, he plugged data into the newest generation of financial planning tools. So what did he learn? He joins me now. Jeremy, let's start with the financial planning tool. You put your personal finances through a stress test,

which we usually only hear about associated with banks. What are the benefits of that test? The great thing about doing this is that it's more than just plugging in your numbers and getting an answer. The reason you want wanna do the stress test is really to imagine all the things that could happen in one's life, both good and bad. Maybe you win the lottery, write a bestselling novel, you lose your job, deal with some health crisis,

and these are the kinds of impossible things to plan for in just a traditional retirement calculator. What the new tools let you do is really see, okay, you have all my info, you can project out what my situation may look like in 20 or 30 years, but then you can run different scenarios. So you can drop, well, what if my income plummets to zero for this stretch for some number of years or the opposite? I get a big raise.

How did these changes play out into the future? It's almost like going on an imaginative journey, both pleasant and sometimes harrowing, but I was blown away once you get into it. And there's initial little work like a lot of data entry and finding different, all the pieces. But once you get the basics in place, it really lets you imagine a whole range of

lives you might have. Alright, so walk us through how people can actually use these kinds of tools. These are at the level that used to be only available to financial professionals. One is called Maxify, which is sort of the brainchild of Lawrence Kotlikoff, who's an economist at Boston University. And the other is called Bolden. They ask for your current assets, your income, how much you're contributing to your various accounts, what do you own a home, what that's worth, how much debt you have, mortgage debt, student loan debt,

or anything else. And then start to make assumptions based on, and this is where it gets tricky, based on thresholds you give for both optimistic and pessimistic market performance or economic data. Is inflation going to remain average or elevated the way we had a few years ago? And all that really changes somewhat dramatically what it looks like down the lines. So you see all these scenarios with your personal finances based on all sorts of events over

the next several decades. What's the downside of using a financial tool like this? It's asking you to make a lot of assumptions, like how long do you think you're going to live? No one, you know, knows that for sure. What's the, whether the market return is going to be in the future and even giving a optimistic and pessimistic range, I mean, you're relying on history to give that. And then same thing for inflation. You know, it seemed for a while that we had permanently pretty low inflation and then we

see what happened there. The risk is for people who aren't economists is user error. It's plugging in the initial assumptions that might not be in your best interest and that can lead you astray in some of the results because the effect magnified over decades, it can be pretty huge either way. That said, I've been covering money and finance a long time, but spending more time doing this does change the way you think about not only yourself, but how 401Ks really work and are supposed to work and the stuff that happens we can't plan for, how much it matters and how much you would have to adopt to compensate. It's almost like looking into a crystal ball.

In about 20 years ago, you visited fortune tellers on Atlantic City's Boardwalk. What did they tell you about your financial future, and how did that differ from what Maxify told you? Well, as I was working with these tools, I thought about the story, which was incredibly fun to do. Where I went to, it was like all the Board of the Board of Fortune Tellers, and it would bring a consensus about what my life would be like. And I have to tell you, JR, it was one of

the most uplifting experiences ever. I joked in the story that is better than therapy. Maybe that's because they're telling you what you want to hear, but the consensus overall then, and I think it was, I was, this is 22 years ago, was that I was going to be comfortable, but not super rich, which actually is similar to what the financial tools just told me. You know, again, it's doing something like that. Like I wouldn't make life decisions based on boardwalk fortune tellers or tools necessarily, but I think it gets you thinking.

Yeah, and both methods deal with some level of speculation. And so what's the lesson here after being through both methods? I don't know if I can give a full-throated endorsement to going to Boardwalk psychics, although if you don't take it too seriously, it was great fun. And I'd say for the financial tools, they are incredibly powerful and useful, but you can't take them as gospel either. I mean, no algorithm can predict your future, let alone the weather.

So you have to take everything with a grain of salt, as always. What struck me here is I think it's worth using tools like this to have conversations with your future self. The biggest net effect is that person who still feels pretty distant is more real in a way since I've run variations on where I might end up. Does it come back to what we talk about often on this show, saving and taking care of your finances to put yourself in a good position to handle whatever comes your way in the future?

Exactly. By doing that you're reducing what percentage of scenarios things go south. If you save more and keep your spending in check you'll see in the tools like the percentage of time where it all goes to hell it gets smaller and smaller. You can't get it to zero probably but you can get it close enough that you can feel relatively good. That's WSJ Personal Finance Bureau Chief Jeremy Olshan. And that's it for your money briefing. This episode was produced by me, JR Whelan, with Deputy Editor Chris Zinsley. Thanks for listening.