What Good is Planning? Part II

This is part two of a three-part series on the benefits of the retirement planning process. In part one, I discussed the importance of identifying your current situation. I identified how establishing a budget can be a powerful exercise and must be the starting point of the retirement planning process.


In part two, I’ll cover the next phase of the retirement planning process: determining where you want to be in the future. I’ll discuss the some of areas that need to be addressed and the advantages of doing so.



The second step in our simplified process, determining where you want to be in the future, is also a worthwhile endeavor. Many retirees wander into retirement without a vision of what they want retirement to be. The most important part of this stage involves developing goals and priorities. Most of us make a daily list of things to do and some even prioritize that list. Why don’t we apply that process to longer range goals? Prioritizing your long-range goals will reduce future conflicts, both emotionally and financially. With no retirement vision or goals, retirees often feel unfulfilled and without purpose. Remember, retirement is more than just about money. Your mental and emotional state are just as important, if not more so.


This stage encourages us to communicate our long-range vision with our spouse or significant other. I can’t tell you how many couples have different retirement visions and goals that are first revealed during our planning interviews. Clarifying your vision and detailing your goals with your partner forces you to have that potentially uncomfortable conversation.


Projecting into the future involves making assumptions. When planning for retirement, you are essentially guessing what the future will look like. This is the main reason the actual retirement plan becomes obsolete very quickly. You must make assumptions on future interest rates, inflation, your health and longevity, taxes, medical expenses, investment returns, and much more. Additionally, there are at least 18 unique risks you face as you transition into and through retirement. By forcing yourself to contemplate these variables and risks, you can develop strategies to eliminate or mitigate their impact on your lifestyle.


On the cognitive side, if your planning process uses empirical evidence in forming future assumptions, you are likely to uncover your biases. We all have biased thinking to some degree and by identifying any potential influences in our decision-making, the result will be more accurate assumptions. By including aspects of behavioral finance into the retirement planning process, the plan has a higher rate of success.


On the financial side, not calculating future income and expenses can be catastrophic. While two in three workers feel confident they are doing a good job saving for retirement and say they know how much they need to have saved to live comfortably, only 42% have actually tried to calculate how much money they will need. Inflation and future interest rates can dramatically erode your retirement lifestyle over time and must be included in the planning process. While the current inflation rate is low, it is unlikely to remain low throughout your retirement. If your nest egg doesn’t keep up, your purchasing power will diminish, and your lifestyle will suffer. Likewise, with interest rates being near all-time lows, retires are finding it difficult to find reliable, low-risk sources of steady income. Having a process that includes flexibility will allow for future adjustments when inflation and interest rates change.


Spending some time and effort into identifying your retirement vision and goals will facilitate the third part of the retirement planning process: figuring out how to get to where you want to be. Many resources are available to assist in retirement goal planning and developing your retirement vision. If you want additional help, contact me. I’d be happy to help!


In part three of this series, I’ll discuss the process of putting your plan into action.

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