Pick a Path for Retirement

The goal with retirement financial planning is to identify where you are today.  Once you know where you are today, then you pick a path that will allow you to go through retirement, so you can achieve your retirement goals.  The key to this path is to have contingency plans. So, if something happens that knocks you off your path, you know today what you’re going to do if that happens in the future.  You don’t want to be going down that path, and have something happen, such as a stock market crash, a long-term care crisis, a healthcare crisis, low interest rates, or bad inflation, any of the things that can happen to mess up your plans.  For all these things that can happen, you want a plan in place that has written into it what you will do if any of those bad things occur.  You want to plan for them today.  And you want to put it in writing.

You see, retirement financial planning isn’t about just saying, “I’m going to retire, and I’ll take my social security, my pension, and my savings, and I’ll go on living life like I have been.”  But instead of going to work each day, I will do the things I’ve been wanting to do.  Retirement financial planning is about figuring out, in advance, what to do if something goes wrong.  Normally nothing goes wrong immediately.  Things go wrong when you’re 75, or when you’re 80, or when you are 85. Or, to say it another way, things go wrong when you’re in a position that you can’t do anything about it to fix it.  You may know people that have had to move in with their kids because they did not plan for assisted living, and now they need care. 

Most of the problems in retirement are income problems. If you had the income, you would have solved that problem.  Income solves the problems.

Long term care is one problem or “gap” in retirement.  What are some other gaps? Well, if your living expenses are greater than your retirement income, there’s a gap. If you need eight grand a month to live comfortably, and your income between Social Security and pension is $5,000 a month, you have a $3,000 gap each month. How do you fill that gap? Here’s one people don’t think about very often: if your living expenses inflate faster than your income, you have what’s called a future gap that’s going to manifest itself.  A lot of people retire with a nice pension today, but it’s a fixed pension. And that’s okay today, but when you’re 68 or 72, somewhere down the road, that money doesn’t buy as many groceries as it used to buy. That’s a future gap that’s going to manifest in terms of how to offset the cost of inflation.

There’re other things like death, health conditions, and so forth. For instance, when the husband dies, on average, the wife sees about a 40% decrease in household income. That may or may not be a problem for you and your spouse, but it is a problem that people face, so that’s important to consider.

Planning ahead and putting it in writing can help you stay on the path, accomplish your retirement goals, and have a carefree retirement.