Friday, June 12, 2015

Make a realistic financial projection

Hi Mr. Tan
A financial planner did a projection for me for the next 40 years. The trouble is, I see big figures, such as several million dollars by the time that I retire. But these figures are not meaningful, because of inflation. By that time, how much is $1 million worth? During my grandpas' time, he could buy a house of $15,000. Today,it cost $1.5 million. Is there any financial planning tool  that can show meaningful figures?

To carry out a meaningful projection, you need to take care of:
1). Remove the effect of inflation
2)  Use realistic projection of the rate of return. (Some planners assume a yield of 10% or 15%, but this is not realistic).

I recommend this financial planning tool that handle both of the above points. You can read (?) for an explanation of the parameters that you have to provide. You get a clear explanation of how to read the projection. Click here

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