“A goal without a plan is just a wish.”

– Antoine de Saint-Exupéry

Some say that planning a vacation is half the fun. I say no way.

I don’t particularly like planning for a trip. The actual trip to me is way more enjoyable! You may like the planning and research, and more power to you. I see it as a chore.

But I still do it.

Hiring a travel agent, reading a guide book, and checking out reviews have all helped me be better prepared and enjoy my trip when getting away for some rest and relaxation.

I don’t like surprises. I want to make the best use of my time, and planning ahead helps me accomplish everything I want to do.

So, why it is that most people take more time planning a vacation than their retirement?

According to a study conducted by LIMRA, only 33% of those workers that are within 3 years of retirement have a written financial plan.

That’s crazy! This retirement thing is a big deal, one that you don’t want to mess up. Here are three reasons your retirement could fail without a plan.


1. You Don’t Know What You Don’t Know


Imagine being dropped off in a foreign city that you know nothing about. I mean nothing—not the language, not the culture, definitely not how the subway system works.

After a while you could probably figure things out. But for that first couple hours, the stress of not knowing would be your worst enemy.

That’s what it’s like approaching retirement without a plan. You don’t know the lingo, you don’t know the pitfalls, you don’t if the decisions you’re making are good or bad—you just don’t know.

Luckily, making a plan for retirement is easier than you might think.

Start by figuring out you spend right now. You can do this through Excel, budgeting apps like Mint, or with old school pen and paper.

This represents your ‘Needs’, the things you need to maintain your current lifestyle. This number will go up over time, but we’ll get to that later!

The next step is to figure out what you want your retirement to look like. This is where you need to dream a bit—don’t limit yourself, because you won’t know what’s possible until you create the plan.

These will represent your ‘Wants’ and ‘Wishes’, the items that would make your retirement great but aren’t critical.

Once you know how much you need to fund your lifestyle, the next step in to create a retirement income strategy.

I could do an entire article on this topic alone—in fact I already did. I highly recommend that you check it out, but suffice it to say that you need to position yourself to have liquid, tax efficient income available even when you are decades into retirement.

Structuring retirement income isn’t difficult, but it’s almost impossible if you don’t plan ahead!


2. You Thought You Knew, But You Didn’t


You know how much you want to spend, and you have a retirement income strategy to pay for it. Does that mean everything is going to go perfectly according to plan?

Of course not!

I had a friend who was travelling through Europe by train with his family. He timed out every stop along the way so that they could see everything they wanted. It was going to be like clockwork.

That is until three days into their trip, when they discovered that it was a holiday…and none of the trains were running!

They rented a car and got themselves to where they needed to go, and actually enjoyed the detour. But little mishaps like this are bound to happen, no matter how detailed your plan.

That’s why you need a retirement plan that is flexible enough to change.

The truth is that most people spend the same amount of money in retirement than they did while they were working, because they have a lot more free-time for all the things they love. But if you planned your retirement like our train trip, you might not have left yourself enough wiggle room.

Assume you’ll spend more than you think you will. And when things change—which they always will—take the time to reassess your priorities, and decide what to keep, and what you can live without.

Just because you have a plan doesn’t mean it won’t change!


3. No Matter What You Know, Some Things You Can’t Control


There are basically two ways to plan for retirement. Either you assume that everything will go well, or you assume that everything will go wrong.

We actually have a name for the two ways to plan. The first type of planning is called the ‘Average Return Method’. This approach takes the basic plan you built in step one, using your needs, wants, and wishes, then implementing your retirement income plan.

After that, everything is pretty much smooth sailing. We factor in inflation, and adjust your average investment returns based on how much risk you can tolerate, but that’s all. People are usually pretty happy seeing their results using this method.

We call the second type of planning the ‘Bad Timing’ method. This assumes that a major disaster happens early on in retirement. Picture retiring in December 2007, on the eve of the Great Recession; we’re talking that bad.

Obviously this is a more rigorous stress test, because in real life, bear markets happen. Our goal is to make sure your plan can withstand the worst.

However, there is one more method I need to mention. This method doesn’t take the best or the worst case scenario; rather it runs one thousand scenarios simultaneously, then isolates the successful trials to give you an idea of just how likely you are to financially succeed throughout retirement.

Here is how I describe this fancy computer simulation.

Take every annual return that your portfolio would have generated over the past 50 years. Some were pretty good and in some years you may have lost money. Drop all the returns in a hat and shake them up. Now drop them out on the table and assume whatever order they landed in is the order of annual returns for your simulation.

Now do that 999 more times.

How many times out of 1,000 did you have money left over at the end of your life? Your answer will give you your likelihood of success. You would typically target a 70% to 85% likelihood of success result.

This is called the ‘Monte Carlo’ method, and it’s the best way to ensure that your plan is built for anything life has to throw your way.


“Plan for what is difficult while it is easy, do what is great while it is small.”

– Sun Tzu


If you have no written plan for your retirement, why not get started today?

Set up a Confidence Booster Call today, and you might be surprised at how much peace of mind retirement planning can bring!



CLICK HERE to become an Insider! Join my Email Insider Group to receive weekly tips and tricks on finance, education, home buying, insurance, Social Security and everything in between. Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Managing Director United Capital Financial Advisers, LLC, a Financial Life Management firm. The information contained in this article is intended for information only is not a recommendation, and should not be considered investment advice. Please contact your financial advisor with questions about your specific needs and circumstances.

© Byron Ellis