Departing from Your Retirement Plan

Can Destroy Your Secure Future

A solid, well-thought, and realistic retirement plan, designed to bring to life the retirement you desire, is the cornerstone to success.

But nothing good happens until you stick to the parameters of the plan and fund it as specified.

A plan is simply nothing more than a set of defined goals all aimed at one grand result. It’s the blueprint for your financial house, but it still needs to be built.

One example of blueprints that don’t come to life are resolutions for the new year. Ever made one that you didn’t follow thorough on?

We all have.

The reason we often don’t follow through with our plans is that bringing big dreams to life – and a secure retirement certainly qualifies – can be really, really hard.

Decades of commitment and sacrifice are required.

Of course the rewards are great and well worth it.

But when you’re in the middle of the heavy sacrifice it can be easy to lose resolve.

If that happens, it’s not your fault and you’re not alone.

Human nature works against us at every turn. First, we crave instant gratification. Saving for a retirement decades in the future is the polar opposite of instant gratification.

Next, life happens. Real needs like weddings, raising kids, buying homes or cars, funding college, and helping out family all tug at our financial priorities.

We are also tortured by points of comparison all around us.

We want the same things that others have, and it can hurt to not buy those things while saving for retirement.

Finally, it’s just difficult to envision our future selves, at an age when the quality of our retirement will be largely dependant on the level of assets we’ve been able to amass.

A Harvard Business Review article shares the findings of how showing a digitally aged picture of the future retiree results in an increase in the amount of one’s salary they are willing to set aside for retirement.

Those who had had the visual cue of their older selves increased their projected savings by 31% more than those who didn’t have the aged photo.

Think of that.

The only difference was a fake picture.

So add all this up and it’s clear what a challenge it is to stick with your plan.

But it must be openly acknowledged that, regardless of how great your plan is, if you don’t stick with it you end up with no plan at all.

Plan departure was a critical mistake my aunt and uncle made. They put together a solid plan. They funded it fully. They started their retirement during one of the greatest bull markets ever. They initially held to their budget.

All the stars aligned for their happily ever after.

Their plan called for investing their liquid assets in a combination of fixed rate return instruments, dividend bearing stocks, and large cap mutual funds that tracked the major indices.

This was appropriate for a couple in retirement who were risk averse their entire life, as well as having no interest in understanding riskier financial instruments.

But then they watched their friends make a pile of money with a full service broker.

They got enticed by the possibility of huge returns, but at the same time were blind to the risk. They were driven by a toxic combination of greed and ignorance.

Greed based on the returns their friends reported. Ignorance of the real risks, and what it would really mean to their retirement to lose half of their original principal.

So they signed on with their friends’ broker who quickly gained authority to trade their account. The investments they were placed in held astronomical risk. This was a massive plan departure.

They made impressive returns for a little while.

Until they didn’t.

The result is that they lost half of their investible assets by chasing insane returns before they finally pulled the plug and fired their broker.

It was smart to preserve what was left, but dumb to have let the hole be dug so deep.

The basic math for recovery is daunting. To bounce back from a 50% loss requires a 100% gain.

Their knee-jerk move into zero risk investments cemented the fact they’d never recover.

In fact, they made the worst possible decision, placing a large portion of their liquid assets into one of the ugliest annuities on the market thanks to the ‘free’ advice they’d received at a complimentary spaghetti dinner hosted by an annuity salesperson.

And they spread the rest of their cash across too many other accounts to accurately track, introducing unnecessary complexity that blinded them to what was really happening.

Regrettably, life has no do-over button, and that’s especially true in retirement, when your capacity to bounce back is very limited.

You lack the income from your career, as well as the timeline you need for compound interest to repair part of the damage.

So what’s the solution if temptation sets in to depart from your well-though plan?

First, determine what’s pulling you to depart, because not all reasons are bad.

If the reason is that you’ve had a major life event, then a re-plan may be very wise.

But if the reason is envy for someone else’s returns, desire to buy stuff now, or that the plan feels too hard, then you’re wise to fight the tug.

What drives us to accomplish some of the biggest, hardest, and most important things in our lives is the ‘Why’ of it.

If our Why is strong enough we will be motivated to push through the toughest of circumstances to meet our goal.

But if the Why is weak or non-existent, then we will almost certainly depart from our plan when the going gets a little too hard.

Our resolve will fade, causing us to seek gratification rather than commit what it takes to create our bright financial future. Because of the long horizon, this is especially true with retirement planning.

So the biggest secret to not departing from your retirement plan is to make sure your Why is big, bold, and shiny enough to keep you going through the rough patches.

And hold that bright picture of your retirement years continually in your mind so that it’s clear what you’re fighting for.

Make sure to write down the specifics of how you see your retirement.

The things you’ll do.

The places you’ll go,

Where you’ll live.

What will bring you joy.

Then when the going gets tough — and it will — pull out your list. Briefly daydream about your retirement. Reignite the passion created by your big Why.

The second secret of sticking with your plan is to have an accountability partner.

If you have a significant other, and your dreams are aligned, they can make the perfect accountability partner who can be strong when you’re weak, and vice versa.

If you don’t have a significant other, or you happen to not be fully aligned, then a fee-only financial planner can act as an objective accountability source. They can ultimately save you from retirement plan departure.

Whoever you pick, knowing you have to answer to someone can be the margin of safety that helps you stick with your plan.

Finally, for some, in sticking to a long term plan, it’s motivating to build rewards in along the way.

For instance, if you adhere 100% to the plan for 12 months you can fund a phenomenal night out on the town. At the five year mark, perhaps a nice trip, provided the cost doesn’t undermine your great progress.

Sticking with a challenging plan for decades isn’t easy. That’s why so many fail. But there are solutions when the temptation to veer off path gets strong.

Learn from my aunt and uncle’s tragedy.

Retirement plan departure means you have no plan at all. Create your plan, stick with it, and bring to life the retirement you deserve.

⇒Next: 3. Negative Emotions Are Costly