Retirement Realities

By Jeremy S. Mitchell, CFP®

When considering retirement, many have a “magic number” in mind that they believe will permit them to retire well. The reality is that retirement success cannot be assured by having accumulated a certain level of wealth. Rather it requires both ongoing monitoring of current spending and identifying and planning for unpredictable events or expenses that could derail one’s retirement aspirations.

Key Takeaways:

  • Retirement assessments are useful but are based on assumptions that will likely change as time passes.
  • Unexpected expenses in retirement can cause financial strain and effect one’s probability of retirement success.
  • Good retirement planning involves regular reviews of “what if” scenarios that help retires and prospective retirees imagine how different choices or unexpected expenses may affect their retirement resources.

Many pre-retirees have a single question on their minds: “When can I retire?” What this often really means is, “When can I afford to stop working?” Financial advisors have utilized fantastically complicated tools to make assumptions about everything from market returns, spending rates, inflation and more toward quantifying the probability of an individual’s retirement success.

In reality, these assessments provide only a rough estimate of a retiree’s likely attainment of retirement success. While this type of planning activity can be supportive, understand that this is not the full story. As you are likely aware, markets sometimes behave in unexpected ways. Certainly, the economic and market turmoil of the 2007-2009 era remains fresh in our memories. Further, unpredictable expenses can pop up at any time. An unexpected car repair bill, a lengthy hospital stay, a long-term care need, or perhaps a grandchild who needs a little help getting through college could be the reasons for a large one-time expenditure. Inflation can also marginalize the purchasing power of retirement income more quickly than expected.

In order to hedge against these potential realities during one’s retirement years, a number of key steps may be taken to mitigate the effects of these unforeseen occurrences and help increase the chances of realizing one’s retirement expectations:

  • Meet with your financial advisor at least annually to update your planning assumptions. Be sure your expectations remain reasonable in light of current circumstances.
  • Contact your advisor prior to any unplanned purchase or expenditure. You can benefit by understanding the best funding strategy as well as understand in some detail how your retirement plan may be impacted.
  • Consider “extreme” scenarios when reviewing your plan with your advisor. Assess how an unplanned long-term care expense or other non-discretionary expenditure might affect your plan at different points in the future. Be prepared with a short-list of action steps if such a need becomes reality.
  • Many Americans like to see their portfolio values stay constant or increase in value during their working years, and expect the same trend during their retirement years. The reality is that a declining account balance during retirement years will be a reality for many. Monthly distributions of income and ongoing management fees are difficult headwinds to overcome, especially in light of more conservative investments during one’s retirement years. Though it is a dramatic shift in thinking from that during one’s working years, such a trend is should be expected.

Having an effective review process and maintaining open communication with your advisor can have a positive impact toward increasing the effectiveness of your retirement plan. Understanding and shifting your expectations about portfolio growth over time can help in dealing with unexpected changes in the market. A systematic review of “what-if” scenarios can help one develop a potential action plan – versus a “reaction plan” – should an unexpected life event occur.


Securities and advisory services offered through Geneos Wealth Management, Inc. Member FINRA / SIPC

Posted in Financial Planning, News and Views.