Anytime a person utters the phrase, “This time it’s different” I get a little skeptical. I’ll bet you do too. It seems that being alive for at least a few decades leads us to believe that we’ve seen it all before, there’s nothing new under the sun. This is likely why kids are so fun to be around, because it’s all new to them. They, unlike you, haven’t seen it all before. One exception to this ‘more of the same’ thinking is planning one’s retirement. After all, most people only retire once, so it really can be different this time.
In the context of retirement planning, we have the event of retirement and we have the circumstances which help to shape a retirement. The event may involve a party and a conversation with your company’s benefits person as well as with the fine folks at Social Security. The circumstances, however, are very unique to your timing of your retirement. For a moment, let’s touch on those circumstances.
First, can you remember a time when you’d earn interest on your bank savings? Now, not so much. Interest rates are almost zero. How often do you check the stock market these days? It’s not uncommon for people nearing retirement to check the market’s goings on multiple times each day! Did you do that twenty years ago? Likely not. When you were a slightly younger person, were you worried about the Social Security system going bankrupt? I’ll bet not. But here you are, wondering what happened to cause such a confluence of events: near-zero interest rates, an incredibly volatile stock market, and social programs and governments under such pressure that they’re having to convince us why they won’t default altogether.
This time it’s different.
While I’m sure you’d like to wish away the uncertainties that seem to confront us daily, I’m not seeing many options to do so. What’s going exactly as planned is your aging, leading to an inevitable retirement from paid work. While you may choose to work forever, eventually the mind and body retire even if we’re not wishing to, financially. So what are we to do? The joke is, “Just retire at the right time.” That is, retire from paid work at the precise moment when your nest egg is bursting at the seams, interest rates reward you for saving, the stock market is experiencing uninterrupted prosperity, and governments are fully funded and fully focused on doing their assigned duties. How long can you wait?
In the meantime, the prescription for the imperfections is to plan as well as you can for the uncertainties, some of which will turn out better than you’d imagined and some that will result in pain and disappointment. Specifically, consider these actions:
- Determine the income need in retirement that will allow you to maintain your desired lifestyle.
- Choose an income planning strategy that results in a portion of your assets to be allocated to reliable and consistent income generation. For some that means securing guaranteed income while others may be comfortable with some risk, given historical trends.
- Reduce or eliminate debt. Less debt to service means less income is needed and less risk is present in your planning.
- Maximize income sources such as pensions and Social Security, given your likely life expectancy.
- Prepare for long term care expenses, either through the use of insurance of some sort or by self-funding future care needs.
- Be mindful of tax minimization strategies. Each dollar not paid to unnecessary taxes is a dollar utilized by you for your objectives.
- Review and adjust your planning regularly. For most people, once per year is perfectly suitable, for those who are nearing retirement or newly retired, more frequent reviews may be best.
In retirement-speak, you really are retiring at a unique moment in time. There has never been a time like this in our economy and there is only one chance for you to get retirement right. Sadly, most retirement mistakes don’t reveal their consequences until many years later in life, when it may be too late to correct. Therefore, a little extra time spent planning may go a long way toward feeling great about retirement, even when the world seems to be conspiring against you and your desired retirement date.
This time it’s different.
So plan accordingly.
All the best,
Adam Cufr, RICP®