Flexible Retirement Planning
Aug 15 2010
“No battle plan survives first contact with the enemy” (Carl von Clausewitz).
The same could be said about retirement plans. Proper planning is critical to success but overreliance on any plan can lead to disaster especially when it comes to funding your retirement.
Planning in the face of uncertainty requires you to make assumptions and success depends on the validity of those assumptions. You are forced to make educated guesses about what your assets will earn, the rate of inflation, and, trickiest of all, your actual retirement expenses. It is impossible to accurately predict any of these unknowns.
So you must be extremely skeptical about what your retirement plan estimates can be safely spent each year. Additionally, you need to build safeguards into your plan such as margins for error and contingency plans to respond to likely threats.
What will you do if your actual investment returns are significantly less than what you projected? Are you prepared for unexpected expenses? If you liquidate assets to produce cash flow how will you protect yourself from having to sell into a depressed market?
Proper retirement planning is a process. You cannot anticipate every possible scenario but you can prepare yourself for the unexpected. It helps to remember what John Lennon said on the subject: “Life is what happens to you while you’re making other plans.”
