Here in the beginning of 2018, I have been reflecting on last year and how tough it is to do financial planning in the face of uncertainty. Yet that is the reality for all of us. A death in the family, a job loss, changes in the tax laws, a severe market correction—these events quickly teach us that things don’t always go according to plan. But, at the same time, we shouldn’t just throw up our hands and do nothing (although that is also a decision some people make). So what is a reasonable person supposed to do when forced to make decisions in the face of uncertainty? Well, here’s the process we use at Aspire that is the result of our experience:

Make reasonable assumptions.
Imagine several alternative scenarios, and plan accordingly.
Try to have a contingency plan for the worst-case scenario.
Stay flexible and open-minded.
Remember the important things.

Reasonable assumptions: At Aspire, we try to be conservative in our portfolio return assumptions, our inflation assumptions, and our life expectancy assumptions. For us, conservative equals reasonable. So our benchmark portfolio return is 6%, our inflation assumption is 3%, and we plan for all our clients to live to 100. Our job is to develop a financial plan based on these assumptions that will work for every client’s unique situation.

Alternative scenarios: For all our clients, we develop at least two to three alternative scenarios regarding the goals they want to achieve. We use our experience to create multiple “workable” plans. We know the most important factors that will increase the probability of success, but we let our clients select the scenario they want to run with. And of course, as their lives unfold, we revise those alternative scenarios or develop new ones to provide an informed framework of the different choices they can make.

Contingency plan: Fortunately, our planning software lets us look at worst-case scenarios where market returns drop significantly the first two years of retirement. We also can do quick what-ifs for prolonged periods of low portfolio returns. We try to structure our clients’ portfolios to include taxable, pre-tax retirement, and Roth accounts. This provides maximum flexibility for withdrawals during retirement to allow for emergencies without incurring income taxes.

Flexible and open-minded: This is really an attitude toward life in general that we try to maintain in our financial planning. So we are always questioning our assumptions, studying what other smart people are doing, and keeping on top of the latest investment and tax trends and laws. It’s about trying to stay humble and teachable. Rigidity can harm you if you don’t allow yourself to make changes in your plan as the uncertainty in your life unfolds. The recent change in tax laws starting in 2018 will force us to shed old ideas and explore new ways to help our clients minimize income taxes.

The important things: There are academics now who research happiness! For example, Dr. Sonya Lyubomirsky, a professor in the Department of Psychology at the University of California, Riverside, and author of the best-seller The How of Happiness: A Scientific Approach to Getting the Life You Want, explains that money can buy happiness—it just depends on how you spend it. At the top of her list of the things we can spend our money on that are more likely to increase life satisfaction are:

Activities that will help us grow as individuals, strengthen our connection with others, and/or contribute to the well-being of our communities.

These activities help us refocus and stay committed to the truly important things in our lives: spiritual growth, education, family, friends, and our neighbors.