Most people think retirement is set-and-forget, or if-I-can-just-get-there. Retirement is a moving target before you get there. Retirement is a moving target after you get there too. That is simply how life goes. Let’s take a closer look.
Take going to the Moon as an example (metaphor) … simply a straight shot up there; and a straight shot back – right? Nope. Both the Earth and the Moon are constantly moving. During the Apollo moon shots, they calculated a critical path to get there and to come back. The astronauts had to constantly make adjustments to stay on the critical path … most of the time they were off the path and had to adjust back towards the path.
Retirement is much the same. The farther away from retirement you are the less certain you are about what your retirement income needs to be. Why? Because who knows, as a 40-year-old, for example, what your income would be when you are in your 60’s? Even a retirement age is a moving target before you actually retire. This doesn’t mean waiting. It means determining the critical path, based on your current income, and shooting for that. As your income changes, your critical path also changes, however as you get closer to retirement, it is clearer what level of income you are shooting for, and at what age you can retire. Your retirement age also gets clearer to you.
Okay, so you got to the moon (retired). The journey is only half over! You have to get back too (you have to make it through retirement too)! Once retired doesn’t mean the journey is complete. You don’t want to run out of fuel before getting back. You don’t want to run out of money too soon.
Now you need to find the critical path for spending it prudently so you avoid outliving your money. Some may opt for an easy way out through an immediate annuity. There are problems with this “easy” approach, since it establishes a fixed income, when inflation’s effects on expenses is anything but fixed. Instead, having a flexible plan allows for spending to adjust as you age through retirement … much like staying on the critical path to get back home.
Retirement planning is not a static plan. It needs to be reviewed once in a while. Both before you retire and also after you retire. This is how you plan so you avoid running out of money.