I had a high school physics teacher who told me more than once, “always be true to your convictions, but prepared to abandon your assumptions.”
At Cordant, we have a conviction for helping our clients make smart financial decisions and working with them to keep their financial lives on track. A key component in helping them make smart financial decisions is creating a comprehensive financial plan that is designed right, and that can be a reliable tool to help them answer questions like: Will I have enough to retire? Can I afford a second home? Should I pay off my mortgage? This is where assumptions come in: in order to create a financial plan, we have to make assumptions about the future, and those assumptions should be based on the best-known information because they can have a dramatic impact on the workability of the plan. If the data and evidence suggest our assumptions are inaccurate, we need to be (as my former teacher would be happy to know that we are) prepared to abandon, or at least adjust them.
The cost of health care, particularly for those on Medicare, is a prime example of a financial planning assumption that gets a lot of new research. This research causes us to evaluate whether our current estimates are ones with which we are still comfortable. With that in mind, I'd like to review our current assumption for health care costs in retirement, consider recent research, and evaluate whether we need to adjust.