The Real Dilemma, Issues and Problems with Retiring without a Plan

Since the origination of modern capital markets, there have always been financial prognosticators who try to use fear and emotional response to grab the attention of audiences and pave the way for their own self-serving business interests.

Fear and greed are both powerful emotions that impact modern financial markets every day. However, regular investors rarely hear financial pundits on television discussing the potential for real doom and gloom in retirement.

Regardless of the retirement lifestyle desired, there are two constants that threaten all retirees who are living on a fixed income. The most significant risk to retirement security is inflation risk, also known as purchasing power risk. Regardless of the retirement lifestyle desired, the long-term impact of inflation is a real risk that many retirees fail to acknowledge.

In an environment where inflation is constantly eroding buying power, maintaining a consistent standard of living is next to impossible without proper planning. In that type of scenario, fear of running out of money can replace the peace of mind many expect upon entering the hallowed halls of retirement.

The other primary risk to those who are considering retirement is longevity risk. As a result of advances in modern medicine, people are living longer today than ever before in history. In today’s world, it is not uncommon for people to be retired for 25 years or longer.

Longevity risk works synergistically with inflation risk. When the two retirement risks are molded together simultaneously the real potential doom and gloom for those living on a fixed income in retirement becomes apparent rapidly.

Consistently saving for retirement when long-term investors are young is one the key components to long-term investment and retirement success. Money invested early has more time to grow and multiply than money invested later in life. While saving and investing for retirement are key tenets to a successful retirement lifestyle, these initiatives alone do not provide any certainty for success.

Similar to many other endeavors in life, having a long-term plan is paramount in order to achieve the type of retirement that pre-retirees envision. A customized, detailed retirement plan will cover much more than just investment selection tips, portfolio management, or asset allocation modeling.

Many financial planners will tell you that they provide retirement plans, but few will actually take the time to provide their clients with a customized retirement plan built around the client’s goals and objectives.

If your current investment advisor is not providing specific planning for Social Security income maximization, Medicare and Medicare supplement planning, estate and probate planning, and long-term care insurance planning, then you do not have a retirement plan at all.

Retirement planning should get very serious around age 50. As an example, certain types of insurance such as long-term care insurance have the lowest premium cost around age 50 which is typically the minimum age for issuance. Significant long-term savings can occur simply as a result of being proactive 10 or even 15 years before a projected or anticipated retirement date.

Retirement projections should be part of pre-retirement planning to determine whether an individual or couple is on track to have the retirement lifestyle that they desire. While forward looking hypothetical retirement growth calculations are usually based on a set of static assumptions, the process helps serious long-term investors focus on retirement savings and tax strategy maximization both during their working years and in retirement.

Without having a retirement plan, it becomes an arduous task to simply quantify how much money should be saved from each paycheck for retirement. Should IRA contributions be made now to maximize current tax savings? Do you have basic estate planning risks covered? Is long-term care insurance a worthy consideration? Do you have a plan to maximize social security income in the future? Are estate taxes a potential threat to your heirs or successors?

All of the questions above would be answered by a thoroughly prepared retirement plan. If many of the answers to the questions shown above are foreign to you, it should be obvious what your next step needs to be. If you are working with an advisor who does not have the expertise or knowledge to address the questions above competently, then it may be time to get a second opinion.

At Wamhoff Financial Planning & Accounting, we would welcome the opportunity to work with existing and potentially new clients to help provide retirement planning advice that is customized and detailed for each specific situation. Ultimately, the responsibility for the quality of life during retirement falls on the shoulders of each individual or couple. However, a goal-based retirement plan can help to reduce stress and fear both before and during retirement.

While there will always be up and down markets, without a strong retirement plan many individuals and couples will unfortunately experience the reality of a poorly planned retirement. While there will always be financial risks, retirement should be focused on spending time with family and pursuing special interests and hobbies. Through proper retirement planning and plan integration, we help alleviate the fear and uncertainty that retirement represents for those who fail to plan appropriately.

For more information on a customized retirement plan or simply for a second opinion, please feel free to contact Kyle Jones at Wamhoff Financial at 636-573-1236. Happy retirement investing and planning!