“I hate the word retirement” – views on financial planning that might surprise you

Don’t live today and sacrifice/save so that you can live at retirement

You can’t just not live today so that someday at some magical age all of a sudden you can live.  At that point, you may not be physically able to enjoy it or you frankly may not have enough.  I think this mentality is completely outdated.  You need to enjoy the journey, not just the outcome.  The pot at the end of rainbow isn’t real.  If you’re miserable all the way to retirement, chances are you’re probably going to be miserable in retirement.  Money is probably not the issue.  Now this doesn’t mean you shouldn’t save and just spend recklessly.  No.  You need to have a plan, be a good steward of your money, and use common sense.  If you have a plan, you can then find that balance, make better decisions, and take full responsibility for those decisions.

This leads to my next point...

Eating principal in retirement

Most planners will try to build a plan so that you don’t eat your principal.  In theory, this would be a perfect scenario.  However, not everyone is in the position to do this or wants to.  You didn’t save money for all those years before retirement to then not spend it.  If I could plan it perfectly, you’d write a check as you went into the grave and let it bounce the next day 😃 

Again, I’m not saying you should be irresponsible with your money. But I think it’s fine to eat principal. It’s more about making the plan work, but you have to be educated about it.  If your financial plan shows you eating principal in retirement and the downward slope is pretty steep, you have to keep in mind all of the unknowns that could exist down the road that could blow up your plan.  A major unplanned health expense, disability, long term care, a new administration takes over and taxes go up 25%!  Whatever it is, you have to build room into your plan for contingencies.  So, eating principal is fine, but make sure you leave enough room in there for the unknowns.

Leads to my next point…

Plan for the worst-case scenario!

Every plan has a set of assumptions behind it - taxes, inflation, return on investment, etc.  I’ve seen so many plans where these assumptions are completely nuts!  For example, when I got in the business in the early 2000s, it was late into the tech bubble time period.  The market crashed and was still crashing.  But just a few years prior to that, the market had been cruising up at phenomenal rates of return.  My first boss was showing his clients plans with a 12% average annual rate of return.  Guess what happened?  The next 10-12 years had a 0% rate of return for US Stock markets!

To build a rock-solid plan, you need to build in the worst-case scenario. To do this, you need to overestimate taxes, overestimate inflation, and underestimate investment returns.  Then see what it takes to make this “worst-case” scenario work.

When I build plans for clients, I want to give them the best chance possible to succeed.  So I build them assuming the worst-case scenario.  It increases the chances of success, but it also shapes the client’s behavior and forces them to do the right things.  At the very least, it puts them in a position to be educated, know what they need to do, and know what the potential consequences can look like if they don’t follow through.

Plan for a range of scenarios

In practice, I usually build two plans for my clients.  A best-case and worst-case scenario.  I show them both, show them what can happen if they do the bare minimum, show them what can happen if they push to do more, and let them make the choice.  Ultimately most will end up somewhere in the middle.  But it takes the pressure off and gives them a couple of simple steps to follow.  All they need to do is pull the trigger and rely on their financial adviser to do the rest!

I hate the word Retirement!

This word is terrible.  There's too many assumptions about what this means and a connotation towards things ending. My experience working with people is that this couldn't be further from the truth! I usually tell clients this is your Independence Day. This is a milestone where you've reached the point at which you get to decide what to do with your time. You're making choices based on what you want, not based on money.

Best 

Josh