The New Buzz in Planning: You Can Save Money, and Make Smarter Decisions, by Keeping Your Options Open

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If I said that life was uncertain, you'd nod. If I added that it's smart to keep your options open, you'd nod again. But when you make money decisions, you often forget these simple truths. You're out on a limb, and unprepared for things to change. I'm not talking just stocks, I'm talking taxes, debt, insurance, everything.

The buzz, in personal-finance circles, is uncertainty planning. The leading practitioners are advancing two terrific ideas.

The first one is "probability." This refers to the odds that your money choices will get you where you want to go.

You deal with probability every day in the weather reports. When the radio says there's a 70 percent chance of rain, you take an umbrella to work. That same idea is being carried over to personal finance. What is the chance that your current savings and investments will yield the retirement income you want?

For a plausible answer, turn to a breakthrough (and free) Web program called It tells you the risk you're running in the race toward your goals. For example, an all-stock portfolio can win big but may also leave you flat. Your odds of success are higher if you save more and include some bonds.

The mutual-fund group T. Rowe Price has a similar program called the Retirement Income Manager for retirees or people ready to retire now. It shows you the odds that you'll get what you want (lifetime income? a legacy?) from the investments you hold. You're also offered alternatives (cost: $500; call 800-566-5611).

"Before long, all planning software will be able to deal with probabilities," says planner Lynn Hopewell of the Monitor Group in Fairfax, Va. Competition within the business keeps producing better tools. Right now, most people (and planners) are clueless about leaving room for the unexpected. But you'll wise up--especially if stocks go from wow to bow-wow in the years ahead. Reducing uncertainty means reducing risk.

The second big idea involves "real options." This deals with the question of when to act: now or later? There's value in waiting whenever an action is costly or impossible to undo. For example, you might wait to marry because of the high cost of divorce.

I don't mean procrastinate, by the way. I mean deliberately delay a decision, in case your life changes or better choices turn up.

As a planning tool, real options is still in its infancy. But even now, it gives you a fresh way of thinking about what you do, says Glenn Daily, a fee-only life-insurance planner in New York. You're encouraged to give more value to flexibility. If you have to act, lean toward the choice that keeps more of your options open. Here are some examples of how that might work:

Case 1. You're in your early 20s and earn a modest wage. Everyone says you should save for retirement in an IRA or 401(k). With 401(k)s, your employer might put some money in. On the other hand, you might need cash to repay student loans, marry, move or buy a house. If you take the money out of your retirement plan, there's a 10 percent penalty.

Most 401(k)s let you borrow, so they're flexible enough. …