We meet many families that may have a generic plan in place, or perhaps have even implemented the perfect financial plan put together by a professional, but we have never met with anyone who has had their retirement plan stress tested. Every retiree has a different source for money and different priorities to spend their money on throughout retirement. The one thing that remains constant, however, is the concern about if they will have enough money to do all the things they want to do, all the things they need to do to take care of themselves and their spouse, and all the things their kids need them to do or think they need to do. After years of experiencing “changes” and “stresses” on retirement plans that crush the success of the plan, we have found it incumbent on us to do just that. Whether you think it will happen, don’t think it will happen, or don’t dream it will happen; we stress it against the plan. It is the divorce for one of your children you didn’t plan on, it is the cost of your health failing, it is Medicare running out of money, it is a decade of no returns in the stock market five years into retirement, it is taxes going up.
Generally, people go through three phases in retirement…Go Go, Slow Go, and No Go. These stages may help you to think about what it could be. And it is what you need to focus on when you plan.
“Go Go” is the first phrase, usually associated with the early retirement phase. You may have been told that, as a general rule of thumb, you will need 75 to 90 percent of the income you have before retirement during retirement. However, when you actually enter retirement you may find this simply isn’t true. You may find yourself spending just as much money as when you were working or maybe even more. And who can blame you - why would you want to change your standard of living? You’ve worked hard and feel that you have earned the right to treat yourself. You’ve probably made plans to see the world, work on your bucket list, and ride in style. This, by the way, is perfectly okay in case anyone hasn’t told you.
The key is planning for these goals with your Life Consultant in a proactive manner, rather than the alternative—after the fact. Money decisions you make during this stage of retirement can have an effect on your financial picture for the rest of your life: especially in the conditions of our current economy. Today is the first day of the rest of your life; how long will that be? 20 years, 30 years, longer? The questions you need to address now are:
- Is your spending a little overboard?
- Do you know how much you should be spending?
- Should you be waiting to purchase that new vehicle?
- Should you be taking advantage of the current car market?
- Are you taking your retirement income from the right places?
- Are you making these decisions with your emotions?
- Are you letting someone who is emotionally unattached to your financial situation help you make these decisions?
“Slow Go”—the mid retirement phase—comes at a different time for every retiree. You may find yourself slowing down, spending less on leisure, and shelling out more dollars on health care costs. When it comes to money you want to ensure you have enough income not just for tomorrow, but enough to take care of your needs 10 years from now. Think about this for a moment: How many bags of groceries does one hundred dollars buy today? Do you think you can take one hundred dollars to the store one year from now and buy the same amount of groceries or will you have to put something back on the shelf? If your money does not keep up with inflation, what happens in ten years, twenty years or longer?
You may also have fears about the current status of Medicare, which the Trustees of the Medicare trust funds reported this year the Hospital Insurance Fund reserves will be exhausted by 2029. This is especially the case looking forward to the “No Go” years—the third phase of retirement—when you don’t spend anything, yet your health care costs are the highest. Moreover, even if Medicare is there, it may not help. Just imagine you could no longer bathe yourself, dress yourself, use the toilet by yourself, Medicare may only pay the first ninety days at most. Then what? Will your spouse do it? Will they be able to do it? Will your daughter-n-law do it? What will she give up to do it?
We have found that there are many individuals and families sitting, waiting, and just hoping for the best. And…they don’t sleep at night. They are scared to death; they don’t know where to go or what to do. Some are actually making emotional decisions because of their fear, and these decisions alone have the potential to devastate their future lifestyle.
It is more important than ever to distinguish between being proactive and emotional, to stress test your retirement plan, and at least know what you don’t know that you fear. Don’t accept a cookie cutter solution to your unique situation. There are so many creative planning tools out there. Work with someone who has an open architecture which utilizes these tools to address what is important to you before it is too late.