Why Financial Projections Are Both Helpful—and Misleading
We humans like to know what’s coming. That’s why tarot cards and weather forecasts exist. And why so many people think of projections as the heart of financial planning.
There’s some truth to that. Seeing your financial life mapped out over time—how your savings might grow, how your expenses will evolve—can be incredibly clarifying. But if we’re not careful, those projections can give us a false sense of certainty. They can feel like a crystal ball when they’re really just a spreadsheet.
This month, I recorded a podcast episode exploring the pros and cons of financial projections: when they’re useful, how they can go wrong, and what to focus on instead. Below are a few key takeaways.
Projections Start Simple… and Get Messy Quickly
At their core, projections boil down to just a few things:
Money in (income)
Money out (spending)
Investment growth or loss
Time
Taxes and inflation
You can build a very simple model based on just those factors. But as soon as you start layering on more assumptions—like “I’ll retire at 62, downsize at 67, and sell the beach house at 80”—things get complicated fast. And the more assumptions you make, the more ways your projection can go wrong.
Monte Carlo Simulations Add Sophistication—but Not Certainty
Many planning tools use Monte Carlo simulations to add nuance. Instead of showing one straight-line outcome, they run thousands of different scenarios based on average returns and volatility. It creates a “cone of uncertainty,” helping you see a range of possible outcomes.
That’s a meaningful improvement over old-school spreadsheets. But it still has limitations, especially when it distills everything into a single “probability of success.” That term makes it sound like anything under 90% is failure, when in reality, it might just mean you would have needed to adjust spending slightly and you would have been just fine. Life isn’t pass/fail.
More Detail Doesn’t Always Mean Better Insight
It’s tempting to make projections increasingly detailed: modeling different tax rates for each decade, estimating healthcare inflation, and tweaking individual expenses. But in many cases, more detail just means more places to be wrong.
Instead, I try to focus on what we’re confident will change. For example, if we know a client will move into a lower tax bracket in retirement, that’s worth modeling. But, guessing what property taxes will be in 24 years? Probably not worth the effort—or the false precision.
Use Projections to Explore Trade-offs, Not Predict the Future
This might be the most important point: projections are most valuable not because they tell us what will happen, but because they help us explore what might happen.
What if I work two more years?
What if I buy the bigger house?
What if investment returns are lower than expected?
These aren’t questions with right or wrong answers. They’re opportunities to understand the trade-offs. And that understanding helps people make more confident decisions.
Planning in Retirement: More Dynamic Than People Realize
Retirement is where projections can make a difference. You’ve built your nest egg, and now the question becomes: how much can I safely spend?
Here, we often use a “guardrails” approach—setting clear guidelines for when to adjust spending based on how your investments perform. If markets perform well, we might dial spending up. If they don’t, we know in advance when and how to pull back.
It’s not a one-time plan—it’s a living system that updates as life unfolds.
For Younger Families, Keep It Simple and Flexible
For folks in their 30s and 40s, projecting out the next 40 years is mostly an exercise in humility. There’s too much life ahead—career changes, family growth, new goals—to assume the future will look anything like the spreadsheet says it will.
That’s why, for younger clients, I prefer to focus on directionally sound planning:
Are you saving enough?
Are you investing in a way that makes sense?
Are you protected against major risks?
We can—and do—run the math. But it’s less about building the perfect model and more about creating a strong foundation, knowing you’ll adjust along the way.
The Bottom Line
Financial projections are a tool, not a guarantee. They can help you visualize the future, compare trade-offs, and understand sensitivities in your plan. But they’re only as good as the assumptions behind them—and life rarely follows a tidy, linear path.
If you're building a financial plan, make sure you're using projections for what they are: rough maps, not perfect GPS. And if you’re unsure about the numbers you're plugging in, it can be worth having a second set of eyes on them.
Especially someone who knows the terrain.
Want more on this topic?
Check out our recent podcast episode: Financial Projections: Helpful or Misleading?” on the Make the Most of Your Money podcast.
