Don’t Sabotage the Retirement You Deserve by

‘Set It and Forget It’

 

This seventh driver can be one can be the most deadly of the 8 retirement planning disaster drivers.

Most believe that the hard part is preparing and planning for retirement and, once you reach the big day, you can kick back and let it ride.

While that is an understandable goal, financial vigilance cannot stop on your retirement day. Retirement plan autopilot is not an option.

When you wind down the career through which you generated income, you become completely dependent on your retirement income and the cash from returns and withdraws on your assets.

At the same time, you enter the period of life where uncertainty about the future is the greatest.

Key questions like how long your retirement will last, your health, and the longevity and health of your significant other are all major unknowns.

Next, your retirement plan assumptions regarding inflation rates, interest rates, earnings on investments, healthcare premiums, withdraw rates, and other primary financial drivers will surely be at least partially wrong.

The termination of your job-related income, along with all these uncertainties, places you in the least financially flexible position of your life.

You can no longer count on the rising income from your job to bail you out of mistakes,

You no longer have the time to recover ahead of becoming dependent on your assets and retirement income streams.

You don’t know if your retirement will last 30 years or only 10.

But you have one major factor on your side: the ability to adjust your plan to accommodate new circumstances to the best degree possible.

This agility to reformulate your plan is the opposite of the ‘set it and forget it’ vision that retirement plan autopilot invites.

You need to be open to charting an entirely new course if necessary,

A sound and realistic retirement plan is the cornerstone of a successful retirement. But it must be considered a living document that’s subject to change in the face of new realities.

The good news is that, prior to retirement, most future retirees embrace the idea of their retirement plan being subject to change. But for many, a switch is thrown on retirement day, and they consider their plan now cast in stone.

This was a major factor in my aunt and uncle’s retirement disaster.

They did the right thing by, during their pre-retirement years, developing and closely sticking to a highly detailed financial plan.

It’s what helped them retire with assets that in today’s dollars totaled $1.1MM despite their very middle class income.

And their retirement lifestyle was projected to leave their assets relatively intact, provided investment return projections were met.

Given the strength of their plan, and their asset position versus their projected needs, they assumed that it was fine to flip the retirement plan autopilot switch on the day they retired. After all, who could blame them?

And during the first few years of their retirement things went great. Autopilot worked.

Their expenses closely tracked their projections.

A favorable stock market had their assets growing faster than expected.

They built their southern winter home, as planned, on budget.

Life was good.

But they couldn’t help themselves.

They grew envious of their friends’ returns who were working with a full-service broker.

Despite that they were extremely risk averse, they plunged in with a new broker who gained authority to trade the account on their behalf, with no approval needed for investment decisions.

100% of their investible liquid assets were placed in the new big brokerage account.

Again, luck was on their side. At least for awhile.

They initially experienced market-beating results.

I recall how they excitedly shared their swelling brokerage statements. They were elated by what they called free money.

What caught my attention, however, was what their broker had them investing in.

They had no idea what options and specialty sector funds were, but they sure had a lot money in them. When I asked a few questions, they just said their broker was a genius, don’t worry.

Unfortunately, the period of miraculous returns did not last long.

At first there were a few losing months mixed in with winning ones.

Then, all of the sudden, the losers outnumbered the winners.

The market was undergoing a minor correction, but their account appeared to be experiencing a depression-sized drop.

Once they lost 50% of their original principal the pain finally became too much and they fired their ‘genius’.

Yet through all of this, and even after this devastating loss, the balance of their retirement plan remained on autopilot as though nothing happened.

While the liquid asset portion of their plan had imploded, it was business as usual on the spending side.

They never did the math that they’d need an impossible 100% return to get back to their original liquid asset balance.

Instead, they went into free advice seeking mode, with the requirement that any new investment have zero risk to their remaining principal.

Certainly an understandable reaction, but they were essentially doubling down on their disaster.

They were fortunate to have pension income along with Social Security, and even their remaining liquid assets were higher than the majority of retirees of the day.

They could have easily rescued a secure retirement by switching off autopilot and re-charting a more realistic path given their reduced assets. But they didn’t.

They instead placed a large portion of their remaining cash in one of the worst possible annuities, relative to fees, terms, redemption, and interest rate.

They bought it from a salesperson they met a one of the many free spaghetti dinners they attended because they chose not to pay for advice.

In fact, the salesperson had an attorney partner that sold them into a trust they didn’t need, that they didn’t understand, and that they never moved their assets into.

The trust was a counterproductive waste that introduced unnecessary complexity. My aunt didn’t even realize that the will they already had in place was superseded by the trust.

But even at this point, with their investible assets cut in half, and a rate of return locked in that was a fraction of what was in their original plan, they sailed on with the spending level of their original plan, as though nothing had happened.

This is the precise scenario where autopilot can crash your retirement. .

To make it worse, my aunt next experienced a major health and lifestyle event when she lost both legs and was no longer able to care for herself.

A serious disease, beyond the physical and emotional devastation, can have significant financial impact.

Severe health conditions can affect your lifestyle to the point you cannot enjoy the assets and activities that you’re spending your retirement dollars on.

You may need a caretaker. You may need to hire help for things you used to do on your own. Transportation costs can skyrocket. You may have to depend on restaurants for your meals.

All have budget-busting implications.

Again, my aunt and uncle kept things on autopilot, as they sailed into a retirement-destroying financial storm.

Many situations are not as extreme as theirs.

Instead, sometimes it’s the little things, if not dealt with quickly, that add up to big things.

Persistently lower returns on your assets than expected.

Higher withdraw rates on your savings than budgeted.

The unexpected need to help kids or other family that causes a single large drawdown.

Inflation that’s higher overall than expected.

An increase in one expense area that strains the budget, like healthcare premiums.

Whatever your challenges end up being in retirement, fast and decisive response gives you the best chance of containing the damage, while autopilot digs the hole deeper.

Yes, the adjustments can be painful. Re-planning the balance of your retirement with a lower standard of living than anticipated is extremely difficult.

But avoidance of your new reality will rob you of your peace of mind and will cause the situation to deteriorate further.

There should be no set it and forget it with retirement.

Ever.

Instead, commit to your agile retirement with carefully scheduled key milestone reviews.

You’ll sleep better at night and so will your family.

 

⇒Next: 8. Working Longer May Be Just Fantasy