When it comes to weather, we typically plan for a mild spring, beach days in the summer, a cool fall, and cold winter months. But in light of this week’s blizzard and the deep freeze before that, we know that the weather can be very unexpected. The same goes for planning in retirement. Unlike saving for retirement, where consistent contributions to low-cost, well-diversified, equity-heavy portfolios and enough time will likely get you to your goal, planning during retirement is a lot harder and can be unpredictable. When saving, if I have not yet reached my goal, I can maybe delay retirement a year or cut out some extra spending, etc. In retirement, I am planning for an end date that I don’t know. Retirement could last 5 years or 35+ years. My income needs could be completely altered due to an unforeseen event. As difficult as this is, the bigger issue is that I don’t know what will happen during retirement and that could derail my plans.
So how do we expect the unexpected during retirement? For starters, I usually ask clients if everything they thought was going to happen over the last 25-30 years actually happened exactly the way they thought it would. 9 times out of 10 they laugh. Of course, they laugh; it’s ridiculous to think that your life would turn out exactly the way you planned in every respect. My next question is always, why, then, would we think the next 25-30 years will be any different? There is so much more potential for something to go unplanned from 65-90 than from 40-65. Caring for aging parents is an ever-growing problem. Children having their own family problems is another. When you were younger, you only had to worry about your family. If you have 3 kids, you now have to worry about your family as well as 3 additional families. That increases the potential for more family issues. Lastly, you or your spouse’s health may be the biggest issue of all that could completely and sometimes permanently derail your retirement plan.
We can’t stop the unexpected from happening. Instead of trying to stop it, we can make a plan for some unknown future unexpected event. Just like we can plan to be more prepared for the next storm or unbearable heat wave. We don’t need to know what it is today; we simply need to know that it likely will happen. By planning for an unforeseen future event, we can hopefully mitigate the damage that such an event might cause. There are many ways to plan for an unforeseen event in retirement, talk to your financial advisor about ways that might be appropriate for you.
Frequently Asked Questions About "Planning" for the Unexpected in Retirement
1. Why is retirement planning more unpredictable than saving for retirement?
During your working years, you can adjust by saving more, delaying retirement, or reducing spending. In retirement, however, you’re dealing with unknowns such as how long you’ll live, future expenses, and unexpected life events, which can make planning much less predictable.
2. What are some unexpected events that can impact retirement?
Common surprises include:
- Health issues for you or your spouse
- Supporting children or extended family
- Caring for aging parents
- Changes in lifestyle or cost of living
3. How can I prepare for things I can’t predict?
You don’t need to know exactly what will happen—you just need to plan for the possibility. This can include:
- Building a financial cushion
- Maintaining flexibility in your spending plan
- Using strategies that adapt to changing needs
4. What role does a financial advisor play in retirement planning?
A financial advisor can help you create a plan that accounts for uncertainty, identify potential risks, and adjust your strategy over time. Their goal is to help you stay on track—even when life doesn’t go according to plan.