Every month, I inevitably will meet someone who is very afraid. Last month it was Doris (at least we’ll call her Doris today). Now, Doris has a large enough portfolio that one would think she would feel secure in her ability to support herself all through her golden years. However, Doris was afraid that she would run out of money.
Specifically, Doris worried about the following:
- She was afraid that healthcare needs would erode her savings.
- She was afraid that her family might have needs and she wouldn’t be able to help.
- She was afraid that she’d make a mistake and a market downturn would leave her destitute.
I suggested that we “Stress Test” Doris’ retirement income plan. Doris was curious as to what that meant.
What is a Retirement Plan?
When asked “Do you have a retirement plan?” A pretty common answer is “Yes, I have an RSP.” A retirement plan is so much more than having an RSP. Your retirement plan is your plan for:
- Supporting Family
- Vacation and Travel
- In some cases, Work
- Charitable Giving
- Your Risk Tolerance and Investment Strategy
- A Tax Plan
- Your Retirement Income Plan
The Retirement Income plan consider the income that will be provided by government benefits, workplace pensions, your personal savings, and RSP. It looks at how these all fit together to support your lifestyle and which one you should draw when. The plan may include downsizing of a home and considers the tax implications of each decision.
What does it mean to Stress Test your Retirement Income Plan?
Now, back to Doris. I explained to Doris that stress testing her retirement plan involved applying all of her fears to her plan and modeling those mathematically. I call it the “What if?” scenarios.
- What if she had an unforeseen medical need?
- What if her family needed her help?
- What if the markets drop?
As I chatted with Doris, she began to realize that she could be re-assured of her success by modeling each of these situations. If we considered what we would do in each case, we have decided ahead of time what we will do and it’s just a matter of implementing our plan. Too often I see folks like Doris worrying about things that they are financially prepared for, but they don’t know it. This causes unnecessary worry.
Each time we come to a crossroads, if we have considered the impact and thought through what we would do, it’s a matter of looking at our notes and implementing it. For instance, if we have considered what we would do in the event of the premature/early death of a spouse, we’ve made those decisions when we’re clear of mind, not when we are under the stress of a recent loss.
I encourage you to face your What-if’s like Doris and include them in your plan. See if you really have reason to worry. Doris found out that she had nothing to worry about. She discovered that she had enough money to cover a medical emergency. She had enough to help her family if they needed her and she had enough to weather a drop in the markets.
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Join the mindful and stop unnecessary worry! What are the things that keep you up at night? I’d love to learn about the impact you plan to make. Please feel free to contact me at [email protected] with your comments and ask to be included on the guestlist for my next Mindful Money Management Zoom Workshop. See you there!