Retirement Plan B
Gary Silverman, CFP®
For the past two weeks, we’ve been discussing “stuff” that happens when you plan for retirement. In week one, I discussed that even with good planning, sometimes your retirement gets derailed. In most cases this means that your savings had to be spent on something else. So now you’ll have less than you need for the retirement you were planning. In week two, we expounded on the reasons that when this happens, you don’t have time to feel sorry for yourself. Instead, it’s time for Plan B. This week, we look at Plan B.
The first thing to remember with any plan is that you must not assume you control what you don’t control. One person I know who was going to be shy of his retirement needs simply changed a spreadsheet value so that it was assumed he would make 15% on his investments. Now, he might get 15%, but I don’t know any credible investment professionals who assume an annual growth rate of 15%. No, you don’t control the markets so you just can’t fudge the numbers to meet your goals.
Another said that she’d work all through retirement. Now, working past whatever you consider normal retirement age is a very viable strategy. Personally, I’m 67 and still working (more on that later this year). But just because you are willing to work longer doesn’t mean that you’ll be able to work into your 80s and 90s. Even if you can, it doesn’t mean someone will hire you. Even if they do, it doesn’t mean you’ll be earning what you are now.
That said, working longer is a critical step to help with your Plan B retirement planning. Maybe your original goal was to retire at 55 or 62 or 65. By planning on working until a later age you have more time to save and less time the money will be needed. (And just in case that doesn’t work out, a Plan C should be in the works.) It all comes to cash flow. Working keeps the “goes in” going longer.
As you might guess, the most important part of Plan B is to be realistic about how much you’ll have to spend through retirement. If you thought you’d have $60,000 a year to live on and now it looks like you’ll only have $40,000, then open the knife drawer and start working on the budget. That’s the other critical step…reducing your expenses. And it won’t be fun.
If your shortfall is slight, only slight adjustments may be needed, maybe periodically forgoing a vacation, buying a cheaper car, or increasing the time between massages. If your shortfall is large, then more drastic steps are needed. It may make sense to sell your home and move into something cheaper; learn to live with only one car for the two of you; eliminate all those streaming services; cancel your gym membership; not upgrade your phone; and eliminate most of your eating out, vacations and discretionary travel.
Admit how big your problem is; determine that you will deal with it; then deal with it by finding ways to earn money longer and spend less. It seems simple, right? But it’s not simple at all, and not a lot of fun.
Gary Silverman, CFP® is the founder of Personal Money Planning, a retirement planning and investment management firm located in
