Retirement Planning: It's Not Just a Number

January 11, 2017

Whether it’s clients who meet with us or acquaintances at social gatherings, “How much do you think I’ll need to retire?” is a frequent question we get asked.  Unfortunately, the usual answer isn’t all that earth-shattering or helpful; it depends.  The notion that all you need is “a number” (popularized by a well-known mutual fund TV commercial a decade ago), just doesn’t explain the difficulty in crafting an effective and workable retirement plan.

Depends on what?  On so many factors.  Here is the short list: retirement spending needs, interest rates, inflation rates, investment returns, health insurance concerns, charitable intentions, when you plan on retiring, unexpected hiccups in the financial/geopolitical world.  All of these are variable and really unpredictable influences on your future, even expected spending levels after you stop working.  You may decide to live in another state, you or your spouse may develop health issues, tax rates may increase, who knows?

The myriad of variables can make retirement planning a monumental endeavor and one which most people naturally avoid tackling, especially in fear of making a mistake.  In fact, this may be part of the problem – there is a misperception that retirement planning is a ‘One-and-Done’ prospect, when in reality, it is an ongoing process that often requires continual refinement and adjustments as a result of the twists and turns life throws at us.

Just as anyone who has been around several decades knows, things rarely go according to plan, whether it’s raising a family, entering a career, or even just getting through today’s agenda!  Why should retirement planning be any different?  Let’s use the example of opening a new business.  The budding entrepreneur most likely starts out with an idea of what the business will look like, how it will operate, the funding required, where it will exist and how it will grow and prosper.  Like a retiree, the new owner will likely have a (written!) plan, secure the finances needed and have defined activities to make the venture a success.  All may go well, of course, but more often, many things will not, resulting in set-backs, adjustments, maybe re-doing the financing or spending, changing how revenue (income) is generated and perhaps a whole new approach to the previous vision.

Like starting a business, a career, or even a vacation, corrections and adjustments are part and parcel to the retirement planning process.  The keys to success are 1) having a retirement plan (written!) in the first place, 2) carefully considering and coordinating income versus expenses, 3) having a “margin of safety” to the plan in cases investment returns, taxes, inflation, etc. change unexpectedly and 4) having contingencies in place when the big stuff (death, disability, financial calamity) occur.  Having a plan is great, being flexible in making adjustments is even better.