One great thing about retirement planning: once you’ve done it, your plan is etched in stone, and you’ll never have to review it again. Right?
Of course not. Retirement planning is an ongoing process because your retirement plan is a living document. As your life circumstances change, your plan will require continual review and occasional revamping. (That’s one reason why Rajiv Nagaich is such a tireless advocate for the financial dashboard concept.)
To illustrate the dynamic nature of retirement planning, this week we are bringing back to your attention this article from Kiplinger in which financial adviser and author Jacob Schroeder offers up several specific situations in which you’ll want to revisit your retirement plan. We found it helpful reading and food for thought. (It first appeared early in 2023.)
One caveat: Schroeder at times appears to fall into the common trap of using the terms “retirement planning” and “financial planning” interchangeably, when in reality they are definitely not synonymous. Nevertheless, he makes some helpful points. Let’s look at five specific retirement planning triggers that the article says will cause you to rethink and revise your plans.
Retirement Planning When Life Never Stops Changing
“A retirement plan doesn’t start with how much money you have or how you invest it,” Schroeder writes in his Kiplinger article. “Rather, the numbers and strategies follow your needs and goals. And guess what? Life never stops happening, so it’s best to be prepared when it comes to changing your retirement plan when life changes.”
Schroeder himself, who is not yet retired, says he has “already blown up his retirement plan” on at least two occasions, for various reasons, abandoning the dreams of settling down in the California wine country or, alternately, retiring as a globe-trotting vagabond. “Some people may think this is just the whimsy of someone who’s too far removed from retirement, that I’m only fantasizing about my retirement dreams,” he acknowledges.
Retirement Planning: a Way to Achieve Your Dreams
“But,” Schroeder adds, “that’s the purpose of a retirement plan – achieving your goals and dreams. Since those things can change dramatically, rendering your initial plan useless, sometimes you’ve got to blow the whole thing up!” What Schroeder is advocating, he explains, is to “adjust your plan to reflect your new situation and desired future. That can take the form of various modifications – spending more or less money, moving funds from one account to another, delaying Social Security.” For all these he recommends working with a trusted financial planner.
Schroeder quotes Dwight D. Eisenhower, who said, “Plans are worthless, but planning is everything.” That said, he adds, “It’s impossible to know exactly how your retirement will unfold. But there are some common motivations for blowing up a retirement plan.” He lists five of these motivations – we’ll call them “triggers” – that can prompt a reevaluation and possibly an overhaul of your strategy.
Retirement Planning Trigger #1: Expectations vs. Reality
Schroeder begins with a dose of reality: for many, retirement isn’t all it’s cracked up to be, especially at first. “Disappointment is the gap between expectation and reality,” he writes. “That’s how some people find retirement at first, a disappointment. After all, how will you know what it’s like until you live it?”
Schroeder notes that many retirees discover that “gap between expectation and reality in [their] retirement lifestyle.” In some cases, the gap is experiential, when none of the things you thought you wanted to do when you retired, such as golfing four times a week, actually make you feel as happy as you expected. But for many, the “disappointment gap” is financial.
Retirement Planning to Adjust for Income Shortfall
If you’re counting on income from work to fund your retirement lifestyle, you’re probably going to have to revise your plan to make up for the income shortfall. “Once in retirement,” says the article, “many people find a disinterest, an unexpected health issue or the lack of work opportunities keeping them from doing so.” Schroeder warns against setting expectations too high. If you do, he says, “reality will force you to adjust your retirement plan – and, certainly, lower those expectations.”
Schroeder lists a few ways to prepare for this eventuality, most of which are common sense steps. For example, don’t count on speculative income, but instead determine those income sources you CAN count on – retirement accounts, Social Security, pension, annuities, and others. He also suggests a retirement “trial run” if you have the time and the flexibility to take some extended time off. “Track your daily activities, spending and emotions,” he advises. “This can give you a good taste of retirement reality.”
Retirement Planning Trigger #2: Reinventing Yourself
As we’ve often pointed out here on the Blog, retirement can take a psychological toll. “Believe it or not, once you enter retirement, you could forget who you are,” Schroeder warns. “That’s because a psychological shift takes place leading up to and during retirement. It can be for better or for worse. Research published in the scientific journal Current Psychology suggests workers who identify strongly with their jobs but have few social interactions outside of work struggle with the post-career identity change.”
Schroeder’s recommendation is to be patient and to get creative. “Fortunately, retirement can be long enough to not only explore what you want to do in life but also who you want to be,” he writes. “It’s why many older adults today try new hobbies, launch businesses and even embark on second careers. It’s possible to create several new identities – the caregiver, the traveler, the athlete – over the course of your retirement.” Any one of these is likely to trigger a major re-think in your retirement plans.
Reinventing Yourself May Mean Spending More
Schroeder offers one idea on how to prepare for this uncertain aspect of retirement that may seem strange at first, but his notion has merit. “The most important step may be to get comfortable spending money on things you enjoy,” he suggests.
He quotes a survey of 2,000 Americans from the Employee Benefit Research Institute (all between the ages of 62 and 75) which reported that only 43 percent of respondents said they planned to spend down all or a significant portion of their assets in retirement. A majority, for a variety of reasons, expected to die with most of their assets unspent.
“Hopefully,” says Schroeder, “you can strike a balance in your plan between managing and enjoying your wealth. Of course, financial security is crucial. You don’t want an expensive new hobby or new venture, like working on old cars or running a business, to put your retirement at risk. You don’t want to make a costly mistake in retirement, because you don’t get to save all over again. But you also don’t want to miss out on opportunities, because you don’t get to live life all over again either.”
Retirement Planning Trigger #3: A Health Crisis
The single biggest problem most retirees will face, as Rajiv reminds us over and over, is a sudden unfunded health crisis. Without preparation, a serious health issue can derail even the best-laid retirement plans.
“Health care is one of the biggest retirement expenses,” says Schroeder, “about $315,000 for an average retired couple age 65 today, according to the Fidelity Retiree Health Care Cost Estimate. Yet, it’s one of the hardest to plan for. Unless you have a chronic medical problem, you won’t know with certainty what your health will be like in the future.” Not only will an unexpected health problem lead to higher medical expenses, but it will also keep you from doing some of the things you had planned in retirement.
In many cases, a health concern will (as Rajiv puts it) quickly become a housing issue, forcing you, as Schroeder writes, “to relocate to a more accommodating residence or make costly modifications to your home. In other words, a lot in your retirement plan is riding on your body.”
Retirement Planning Includes Health Care Planning
Schroeder’s advice is three-fold. First, get the right health insurance. Second, consider long-term care insurance, especially if the size of your estate might make it difficult or impossible to qualify for means-tested aid programs such as Medicaid or VA benefits. The third “leg of the stool,” he says, is to do what you can to stay healthy.
“Most important,” says the article, “live a healthy lifestyle as early as possible. ‘Health is wealth’ becomes truer with age. Exercise regularly, drink moderately, smoke never. Those three things alone can greatly boost your health later in life.” Find an activity that gets you moving 20 to 30 minutes a day.
We’ll add one recommendation Schroeder overlooks: trust your care to the right physician, ideally a geriatrician. Their special training in health issues specific to seniors will help you stay healthier longer and avoid the danger of over-treatment and unnecessary prescriptions offered by doctors who are less qualified.
Retirement Planning Trigger #4: Life Happens!
When you crafted your retirement plan ten or twenty years ago, you might have been a different person with different circumstances and priorities. Life change is definitely a trigger to review and possibly rewrite those plans.
“Life can always find a way to get messy – no matter how much money you have or how old you are, working or retired,” Schroeder writes. “The kids move back in. We lose loved ones. Or we find new love.” He cites the highly publicized separation in 2021 of Bill and Melinda Gates as an example of the upheaval any of us can face in our closest relationships as we age.
“[The Gates’s break-up] is a testament that divorce is common among older adults,” he states. “Research published in The Journals of Gerontology found that more than 1 in 4 people getting divorced in the United States are over age 50, and over half of those divorces happen after 20 years of marriage.” These break-ups, besides being emotionally wrenching for all involved, can often create financial headaches for both spouses, even the whole extended family.
Retirement Planning: Keep Up with Family Changes
When it comes to preparation for this kind of change, Schroeder gives some advice we’ve offered hundreds of times: keep those beneficiary designations current. “A part of your retirement plan may include what happens to your assets upon your death,” he writes. “To make sure your wishes are fulfilled and your loved ones protected, keep your beneficiaries up to date.”
Naming beneficiaries is not a set-it-and-forget-it proposition. “It’s common for people to name them once and then forget about them,” says Schroeder. “Remember, the beneficiaries listed on your assets, such as your retirement accounts, override your will. Divorcing and remarrying without updating your beneficiaries could create an emotionally difficult situation for your family.”
Retirement Planning Trigger #5: A Turbulent World
If you ever doubted the power of profound societal change, take a look at the past few years. “Sometimes,” says Schroeder, “there are weeks where decades happen. The world changes dramatically, quickly. The COVID-19 pandemic is a good example. From geopolitical conflicts to technological advances, tidal waves of change can forever alter the way we live now and in retirement.”
He cites one example we seldom consider: climate change, which, he observes, will likely alter where and how people live. (We write about that in another article on the Blog this week.) He cites report from the National Oceanic and Atmospheric Administration that projects 10 to 12 inches of sea level rise on parts of the U.S. coast by 2050. “Barring any drastic prevention measures,” Schroeder warns, “that would make some popular retirement destinations nearly uninhabitable. Instead of flocking to the Sunshine State, those retiring in the next 30 years may opt for higher ground in the Rocky Mountains.”
Retirement Planning Means Staying Flexible
Preparing for a worst-case scenario might be unthinkable for most of us. “Sure, it’s impossible to prepare for cataclysmic events,” says the article. “But it’s possible to think about how the world could change years from now and create some contingency plans.” This can start with a re-think concerning where we plan to live when we retire. He also advises readers to consider our own impact on the environment and what actions we might take to make things better.
All this can trigger a major retirement reevaluation. “Would you be OK with moving to a different state or even a different country in retirement, if it’s safer?” asks Schroeder. “The same goes for your money. You don’t want to lock up your wealth in illiquid assets when there’s always a chance you may need to access funds quickly.”
Planning in Uncertain Times and Circumstances
“If life can be so uncertain,” Schroeder asks rhetorically, “then why make a retirement plan in the first place? What’s the point of sacrificing some things today to save for a future you don’t know will come to fruition?” For him, the answer comes down to one word: options. “You create and follow a plan to grow wealth, because wealth helps you pivot in life as painlessly and seamlessly as possible,” he concludes. “As comedian Chris Rock put it: ‘Wealth is not about having a lot of money; it’s about having a lot of options.’”
As simplistic as that might sound, we think there’s much more to retirement planning than that. “People don’t want to run out of money,” says Rajiv Nagaich. “But they also don’t want to end up becoming a burden to those they care about. What’s more, they don’t want to be stuck in institutional care late in life against their wishes. This article makes some good points, but the approach sounds pretty selfish to me. Everything this article talks about can be dealt with if you take the time to create a LifePlan and a financial dashboard. These critical steps will help you be ready for anything life can throw your way.”
(ori9inally reported at www.kiplinger.com)