Real Life Can Destroy Even the Best Retirement Plan

My name is Mike and two years ago I was asked to help my paraplegic aunt sort out her finances after my uncle died.

Knowing their meticulous and successful pre-retirement preparation, I wasn’t at all worried by what I might find. Their level of preparation for their late 1980s retirement placed them in the top 5% of all retirees at the time.

In fact, their assets were the equivalent of $1.1MM in today’s dollars, with plans for a small annual draw because pension, and eventually Social Security income, covered most of their expenses.

With an exceptional level of preparation, and with reasonable expenses expected during retirement, they should have been able to enjoy the secure retirement they worked towards and deserved.

But after a deep dive, I was horrified by what I found happened during the years following their big day. It was complete disaster, with my aunt now bordering on insolvency.

From what I learned I had three revelations:

1. If their well-funded retirement failed, it can happen to anybody.

2. Once retired, even if your plan is rock solid, placing it on autopilot invites disaster. 

3. They retired at one of the best times for retirees ever. Future retirees will not be as lucky.

I used to believe that the hardest part of retirement preparation was developing and fully funding a realistic plan.

Like many, I thought once you did that, on retirement day, you should be set.

Yet my deep dive into their situation let me see how 25 years of real life can destroy the best retirement preparation.

Your retirement day is like a commencement ceremony from school: the beginning of a new chapter, not the end.

Retirement plans must be continually revisited and adjusted in response to changes in your life, and in the plan’s underlying assumptions.

Autopilot is not an option.

So much emphasis is placed on pre-retirement preparation — which is important — but so little on what to do in the post-retirement years. That must change.

Timing of retirement is also a critical factor. Regrettably, you may have limited control over this. In the years since my aunt and uncle’s retirement, the landscape has dramatically changed.

They had a pension. They entered retirement at the start of the greatest bull market in history. Higher interest rates helped swell their savings. They had post-retirement health benefits from my uncle’s employer. Rising home values increased their total net worth.

Times are sadly different today.

Pensions are rapidly disappearing. Interest rates have been artificially low for a decade. The stock market has been driven by unprecedented and unsustainable government monetary policy. Post retirement employer-paid health benefits are disappearing. Housing is unlikely to double and triple.

What does all this mean?

To ensure a secure future, you must plan and aggressively fund retirement early. And then you must proactively adjust during retirement, as reality works to make your previous plans outdated.

You should expect that economic conditions won’t be as favorable as for previous retirees.

You must build in contingencies to your plan because life happens and your health or other unexpected issues may impact your financial well-being.

Actively managing your post-retirement period is mandatory.

It’s never been more true: Retirement is All on You.