A 50-something couple met with me to discuss early retirement. Their wealth analysis revealed that they had an estimated 80 percent probability of having a financially successful retirement. In other words, they probably wouldn’t run out of money.
Still, working a couple more years and saving a little more money would give them an additional cushion, raising that probability to well over 90 percent. But they didn’t want to wait to retire, even with a good understanding of our analysis. They said, “We want to take our chances and retire now.”
Then I asked, “What’s your Plan B?”
What happens if you experience a health issue that costs a lot of money, or you must help one of your children financially, or the markets go into a tailspin that impacts your investments? Or what happens if you just plain overspend, live too large or make financial mistakes and your money begins to dwindle?
In Chapter two of his awesome book The Only Guide You’ll Ever Need for the Right Financial Plan, prolific author Larry Swedroe asks: What will you do if the risks show up as they did in 2008?*
Back to our retirement-bound couple. I helped them identify their Plan B, which is to sell their large custom-built home, sell a sporty, fun third car, and downsize their lifestyle. When I explained that these steps would be the likely result of a shortfall in wealth to support their retirement, they said, “Okay, we can live with that.” We are in the process of adding that to their Investment Policy Statement.
The first questions that any wealth adviser must help a client answer are “What is it that you truly want to achieve now and in the future?” and “What is really important to you?”
The next questions to consider are “What if that doesn’t materialize? If your plan doesn’t work out, what is your backup Plan B?”
Then get your plans down in writing in a document called an Investment Policy Statement, the subject of my previous post.
*Larry Swedroe is director of research at Buckingham Strategic Wealth and The BAM ALLIANCE and the author or coauthor of 15 books on investing and financial planning. His 1998 book, The Only Guide to a Winning Investment Strategy You’ll Ever Need, changed my thinking about investing and had a huge positive impact on my life and my professional practice.