Not in the Plan

HAVE YOU EVER MADE a plan and then had it go awry? Like the car breaking down on the highway when you’re driving to Christmas dinner, as happened to me several years ago.

Stuff happens. That’s why I can’t understand why many people preparing for retirement seem to have unwavering confidence in their planned budget—one that’s often generated using software or a spreadsheet.

Hiring a financial advisor may help. But for that advice to bolster your chances of success, you must be 100% honest when discussing your goals, your fears, and how you define risk and financial security. Is your goal really to spend every penny and leave nothing to your children? Are you really an aggressive investor and truly willing to live on a tight budget?

I’ve heard people say their planning covers every contingency. Over the next 30 years? I doubt it. I’ve been retired since 2010. In the last three years, I’ve spent $5,000 on an unplanned tree removal and $8,000 on dental work in a single month. In 2021, my former employer dropped our medical and prescription drug coverage, replacing both with a payment to a health reimbursement account that, over time, won’t keep up with premium inflation.

Those are just some examples of what can happen. I’m thinking they aren’t in row 10, column B, of most retirees’ planning spreadsheet.

Some people have supreme confidence in their budget and how much money they need. Unfortunately for many, it may be necessary to live on a strict budget that only covers basic necessities. But is that a desirable plan? Having just enough to get by, based on some cooked-up budget, seems a bit risky.

Surveys consistently show a great disconnect between saving rates, expected retirement income and spending in retirement. I cringe when I read that living in retirement is possible on 40% or even 60% of preretirement income. Will that income really cover all financial risks for 30 years—and perhaps far longer if folks are retiring in their 50s?

My perspective is different from that of most retirees. I have steady income from a pension and Social Security that’s equal to 100% of my preretirement base pay. Perhaps I’m too conservative—and too skeptical of retirees who think they can get by safely on their investments and Social Security.

I try to think ahead, to cover all the bases, to account for life’s “what ifs.” So far in 2022, those “what ifs” include high inflation, a rocky stock market and rising interest rates. I maintain retirees need more than whatever their budget indicates. Their retirement finances should include an emergency fund—and ample financial breathing room.