When you retire, this will likely be the first time you are using your personal savings to generate an income. Due to the lack of experience you may, justifiably, choose to proceed with an abundance of caution. This caution may lead you to be more conservative in your approach than you otherwise could be with smart planning.
Advancements in Engineering
Matt Parker discusses a similar phenomenon in his book Humble Pi: When Math Goes Wrong in the Real World. In this book, he discusses the evolution of bridge design as a result of increased mathematical knowledge and better tools for engineers to use when they are doing their calculations.
He notes the differences in the design of nineteenth and early-twentieth-century structures, built from large stone slabs and massive steel beams. In short-everything was ‘over-engineered’ in an abundance of caution since they were relying on intuition rather than mathematics.
By leveraging calculations and planning we can build structures beyond our intuitions and come closer to the edge of possibility. Certainly, this is not without some risk. As a result, governing bodies establish building codes to ensure there is a sizable margin of safety built-in.
These third parties review and approve the design prior to construction. They take into consideration the demands to be placed on the structure and possible adverse conditions that could be imposed.
Advancements in Retirement Planning
Similar advancements have taken place in the area of retirement planning. Modern software allows you to perform stress tests, run various hypothetical scenarios, optimize the claiming of retiree benefits, and see the impact of the changes you make to your plan.
Unfortunately, unlikely with engineering real-world structures these calculations cannot be made with certainty. While math and physics include scientific certainties and outcomes, the direction of any investment cannot be anticipated, as such, there is no definitive way of knowing whether the predicted outcome will be realized.
Leveraging Retirement Planning Software
When you are approaching retirement, you want to make the most out of the resources you have available to you. By leveraging software you can better prepare yourself to see if your current strategy is feasible or needs adjusting.
While no software or strategy will ensure an outcome with certainty, they can assist in your overall decision-making process. There are many versions of this kind of software available on the internet, and some of them are even free to use.
Often, many of these programs are ‘black boxes’ and you are not able to see the underlying calculations. This then requires you to be certain your inputs are both accurate and reasonable given your circumstances.
Implementing Your Retirement Plan
Once you create your plan, you must then begin doing what the software suggests that you do. This could mean changing your investment allocation, begin saving, or spending X amount of dollars. You will also be responsible for implementing any insurance, estate, or tax planning recommendations, which will often require working with a third party of some kind.
After the upfront heavy lifting is finished, you would then regularly monitor your plan, and make adjustments to your plan when necessary.
Outsourcing Your Retirement Planning
An alternative to creating your own retirement plan is deciding to work with a financial advisor to create one with you. Working with a financial advisor can help ensure your calculations are correct and your plan is feasible. They can also help to implement the recommendations in the plan and provide ongoing monitoring.
A financial advisor can also share their experience with those who they have helped before you. They can help you avoid common pitfalls and provide you with actionable insights about your specific situation.
Retirees today have access to more free information and resources than ever before. The issue today is not access but rather the accuracy of the information and mistakes can be costly. Understanding the information and actually implementing the recommendations from that information are two different skills.
If you do decide to go it alone, proceed with caution and a healthy level of skepticism.
*Investing involves risk and the potential for loss of principal. No one plan will ensure your outcome is favorable. As such it is important that you understand the risks involved in your plan.
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