I hope this is the precursor to many helpful financial simulators
I’m excited to introduce you to a simulator. Not a flight simulator; a pension income simulator. It’s designed by Pensionbar, a firm behind which stand Leyla Imanirad and Saman Khodai, young friends of mine. I’m on their Advisory Board – not paid, no stock options or shares, nothing like that – I’m just delighted to chat with them periodically and act as a mentor.
Designing a calculator is much tougher than I imagined when I first started work on the one on my website. You need to be very clear on the purpose: what is it meant to tell the user? What inputs are required? What are the variables? How will they be specified by the user? What form should the outputs (the results) take? The formulae that convert inputs to outputs may be complicated, but for geeky types like me that’s actually the easiest part.
Once users have the first set of outputs, invariably they react by wanting to change some of the inputs in order to get outputs that make them feel happier. How should those inputs be made capable of being changed?
Once users have done calculations, they probably want to store the calculations somewhere so that when they use the calculator again they don’t have to go through the whole input process again. So, how are storage and easy retrieval achieved? And (important in this day and age) how confidential and secure is the storage?
My own calculator is a very advanced one, I’m told by those who have seen a few such models. It tells you a lot, but it’s not easy to use because there’s lots of independent input that’s required. And you have to type in the inputs, once you’ve got them.
I had neither the patience nor the design skills nor the business sense (or desire) to go further. And nothing gets stored, ever.
That’s why I was delighted when Sam and Leyla approached me with their idea and some diagrams of what they hoped to achieve. There were actually several features that excited me.
- Since there are three main sources of post-retirement income, there will be three separate simulators, one for each source: a government pension, a workplace pension, and any other form of accumulated invested savings that can generate an income. And then all three simulators will be combined in a visually appealing way. Excellent and simple concept.
- The user of this first simulator is meant to be any worker interested in estimating his or her pension income. So this one is clearly for individuals.
- They specifically chose the word “simulator” because they want the output to be be pretty close to accurate rather than accurate to the last decimal. The fact is that most government pensions require tons of accurate input (like your entire salary and national residential history, for example), and most people haven’t a clue as to the order of magnitude of the resulting pension income. Pensionbar decided they’d rather give a quick and easy (and close to accurate) simulation that exactly reflects the (very simple) inputs. They’ll work on something more detailed when the provider of the pension (the government, or for the second module a plan sponsor) provides an exact formula as well as all relevant historical information. In other words, don’t let perfection be the enemy of the good: very clear.
- Also, this is simulation rather than financial planning. It’s an input into proper financial planning. It’s a step on the road to making the pension myth (which is how it appears to the average worker) a little bit more transparent and relatable.
- What most excited my own geeky mind, which is numbers-oriented rather than picture-oriented, was the visual appearance of the simulator. There’s what they call “the circle of life” to show different dates, and the inputs are all on sliders at different points of the circle. I was captivated by the look and by the ease of input and really the intuitive nature of the whole thing.
Here’s a link to the first element, the first experimental design, that they’ve released publicly. It deals only with the Canada Pension Plan and Canada’s Old Age Security pension. Simulators that show results from other countries’ arrangements will follow, as will simulators for the other two main sources of post-retirement income.
Who are they, and what is their business plan? Pensionbar is a FinTech company, established in 2020. They intend to always let usage of this first of the trio of simulators be free for individuals. I’m thinking that the other simulators will be aimed at non-individual users, for example plan sponsors and financial professionals, who will be expected to pay for the service.
I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.