Why We Should Forecast Our Financial Future

I invest to meet my retirement goals. The fact that you are reading this means you probably do too. If you’ve been reading this blog for long you know that I like to spend time showing examples of what it takes to build a retirement portfolio.

While many of us are like minded I have found no shortage of coworkers and friends that don’t know how much they will need to retire or what it will take to get there. I’m often left wondering when they will to start to care.

I think there are three reasons why people are comfortable with not having a plan:


This covers those that are still young enough to think that they can worry about it later. As we saw in the dividend millionaire post there is no substitute for starting early. The compounding effect of early dividend investing is undeniable. Waiting to pay attention, set goals and build income producing assets will cost us later. I personally am young enough to be familiar with the financial distractions that come with buying a home and setting the financial foundations for a family. But forecasting your future is still extremely important in this stage so that you know what you will need to put aside to reach your goals. Without these forecasts you will not know what you will need to care of your family’s needs down the road.

Old School

Many investors concerned about their retirement have been trapped in old school thinking at least once in their past. They believed that if they followed “the rules” retirement will take care of itself. Those rules being work hard, stay loyal to your company, save, invest in your home and invest what is leftover in the stock market. After the recession most 50+ investors had a major wake up call. The “System” or The American Dream is not what it used to be because the old rules do not apply.

Doing My Best

People in this category believe there is nothing more they can do besides work at their current job and save what they can. I find most people in their 30s and 40s that do not have a plan fall into this category. They take what life has dealt them and decide their fate is not in their own hands. Or even worse they still believe in the American Dream and think that things will take care of themselves. If this group just simply wrote down their goals and expectations for retirement it would be a huge wake up call. It could help them to create a plan and could alter how they spend their time and money for the next 20+ years.

What Do I Mean By Forecast

There a plenty of models out there that will help you figure out how much you need to retire. The rule of 300, the standard $1M, the 4% rule or others. I personally subscribe to the 4% rule and try to keep it simple.

I take my current monthly expenses excluding my mortgage (which will be paid off) and adjust them for inflation (2-3%) over the next X years (X = # of years until I retire). That tells me roughly what I will want to spend each month. I can then determine roughly what I will spend each year. Then it is easy to determine how large of a portfolio I will need to create income to cover my expenses using the 4% rule.

The bottom line is that each person’s number is specific to that person. We all have different lifestyles and desires for our retirement. The simplest way to determine your number is to take what you think you will need in annual retirement income and adjust it for inflation at the time you will stop working. There are plenty of calculators out there that will help you do this. Then you’ll need a plan to create income producing assets that will provide that level of income at retirement. This could be through many different investment vehicles but we will stay focused on dividend stocks.

Once you know your number you can start to figure out what you need to set aside each month. You can also take what you are currently setting aside to see where you’d end up if you stayed on that path.

Why We Must Forecast

Let’s face it, running forecasts for retirement is only fun when you expect to do well. And maybe I should have added that a reason why many don’t do forecasts. If you don’t think you can save/contribute much towards your retirement it will paint a disappointing picture. That probably keeps a large percentage of the population from running forecasts.

We must forecast because:
1. It shows us if we are on track to meet our expectations
2. If we are not on track it gives us a chance to make a change
3. It shows us where we are headed if we stay with business as usual

Get started forecasting your future.


  1. Just a note, the Rule of 300 and the 4% Rule are the same thing. It provides the same exact numbers, one just estimates your needs while the other estimates your withdrawals.

  2. I think it’s important to make forecasts because you can tell where you stand and what you need to do. Unfortunately I think most people fall into the “not thinking they can save/contribute enough” camp so instead of doing whatever they can do they just kind of give up.

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