Sometimes You Don’t Know What You Don’t Know Until It’s Too Late

Sometimes You Don’t Know What You Don’t Know Until It’s Too Late

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I recently came across the following comment by a reader of an article in an online publication discussing planning strategies that you can use to help you determine if you’re ready to retire:

These points are fine.

But I’m retired, and I know plenty (of) other retirees. Retirement planning is not all that difficult. Control your spending, and have a plan and budget. Some common sense.

Retirement will work for the majority of us. Don’t over think it.

Jerry’s (not his real name) comment immediately brought to mind the following saying:  “You don’t know what you don’t know.” The next day when I began writing this post, I modified this to read, “Sometimes you don’t know what you don’t know until it’s too late.”

Retirement Planning Is Complex

While I appreciate Jerry’s attempt to simplify retirement planning, the reality is that it’s anything but. Anyone who has planned for retirement or has been retired for ten or more years understands and appreciates this.

Although I could be wrong, it appears that Jerry probably wasn’t retired when the Dow Industrials dropped 7,324 points, or 52%, between October 1, 2007 and March 2, 2009. Many people who thought they could retire didn’t consider the possibility of an extended stock market decline. At a minimum, they were forced to make unanticipated lifestyle changes and, in many cases, seek reentry into a difficult job market.

Controlling spending, budgeting, and having a plan are not simply about common sense. They are lifelong habits that require a lot of discipline. While controlling spending and budgeting are important, they are just part of the recipe for a successful retirement. Planning for the right types and amounts of after-tax, inflation-adjusted income that matches your projected needs is equally important.

Uncertainties Abound

Retirement planning is challenging (which is why I love it!) for professional advisers who specialize in the field. Retirement is a long and winding road with different stages, usually lasting at least 15, and up to 30, or more, years in some cases.

You need to plan for a plethora of uncertainties, most of which are uncontrollable. These include, but aren’t limited to, the following:

  • Potential forced retirement
  • Premature death
  • Long life
  • Extended care
  • Escalating health care costs
  • Income tax erosion
  • Inflation
  • Unknown investment returns
  • Sizable and/or extended stock market declines
  • Unexpected expenses

Planning for these and other uncertainties requires the preparation, implementation, and ongoing maintenance of a comprehensive retirement plan. Multiple what-if scenarios need to be included and analyzed in order to reduce the possibility that you will outlive your assets. The ability to increase cash flow and extend the life of portfolio assets by employing appropriate income tax saving and other financial strategies requires specialized knowledge.

You Cannot Over Think Retirement Planning

Given all of the various uncertainties and complexities, the ability to enjoy a successful retirement hinges on designing, implementing, monitoring, and making ongoing changes to a customized comprehensive plan. What works for one person won’t necessarily work for you.

Experience in and understanding of the interplay of risk management, income tax laws, investment management, cash flow planning, and retirement income planning strategies is essential to the success of most retirement plans. An experienced professional financial adviser who understands your needs and specializes in retirement income planning is invaluable for guiding you through the pre- and post-retirement maze.

There are no Do Overs in Retirement

As a CPA, PFS, CFP®, RICP®, CLTC with 30+ years of income tax and financial planning experience working with clients and who has been specializing in, and writing about, retirement income planning for the last eight years, I know that retirement doesn’t simply “work.” Unless you’re Phil Collins and have the wherewithal to unretire, you have one shot at getting it right.

Not a week goes by when I don’t come across several articles discussing the inability of individuals to retire in the lifestyle to which they were accustomed as a result of the lack of proper and timely financial preparation. Sometimes you don’t know what you don’t know until it’s too late.

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