CASE STUDY 1: Why retirement planning should plan for the unexpected

You would think a sense of contentment would enfold you if you had a million dollars and were confident enough in your circumstances to consider retiring at age 53. You would think.

You gather your paperwork. You look at your budget. You have discussions with your spouse. You make what seems to be conservative plans. So, thinking you couldn’t possibly spend a million dollars in your retirement (after all, if you elect to receive your benefits early, Social Security will be kicking in within nine years and you’re generally healthy), you call your financial advisor.

You’re asked about your tolerance for risk. You’re asked how you “feel” about certain investments. You’re given a few options of products offered, suggestions of investments that have been successful in the past.

Your advisor proposes an industry-acceptable percentage that you can withdraw on a regular basis to cover the necessities of life – and maybe just a little more, so you can enjoy the retirement you worked so hard for.

You’re counting on the market to provide some gains. You’re counting on your future being uneventful. Then life happens. One of your adult children has a medical emergency. Of course, as a parent, you help out. The market misbehaves. Well, that’s OK. For now. It goes down. It comes back up. It goes down a little more. There are more medical bills. You’re realizing, while you still make your regular withdrawals (a percentage of your original investment), that the nice linear life path you expected has some bumps.

You’ve been forced to make withdrawals when the market was down. You know this isn’t a good thing. You’re certain the market will come back. And it does. But serious damage has been done. You’re still withdrawing the amount suggested by your nearsighted advisor. The returns you would have realized have diminished due to your untimely withdrawals.

“When you know better, you do better,” says American poet Maya Angelou. An experienced financial planner hopes that is the case … that by educating pre-retirees about the bad behavior that causes retirement plans to fail, those people will make better decisions.

Yes, this retiree could have kept working a few more years, adding to their retirement fund. They could have cut their spending back a little. They could have paid just a little more attention to the dwindling bottom line and asked for help sooner.

The financial planner, also changing their bad behavior, is now aware, in our opinion, that having a plan that leaves the more volatile investments separate from the actual money set aside for living expenses is the only way to avoid untimely withdrawals. After all, if we could all plan our emergencies to coincide with the market being high, retirement savings would involve less risk. But as soon as we need to come to the financial aid of a family member, or have a medical emergency, we need to have an account that can withstand withdrawals, despite what the market is doing.

This is why, at our practice, we use Goal Planning & Monitoring, a proprietary planning software from Raymond James that provides a helpful way to visualize different scenarios and project the probability of various outcomes. Because we know better. And life happens.

Learn more about Goal Planning & Monitoring

The projections or other information generated by Goal Planning & Monitoring regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Goal Planning & Monitoring results may vary with each use and over time. Past performance may not be indicative of future results. This hypothetical example is for illustrative purposes and is not representative of any actual experience. Individual results will vary.