Help clients plan for worst case, moderate and best case scenarios
Planning for retirement is tricky. So many of the financial variables are beyond one’s control: gasoline prices rising dramatically from one day to the next, the stock market fluctuating up and down, and unexpected medical expenses being paid out of pocket.
These variables can wreak havoc with retirement plans.
Unfortunately, many of those planning for retirement, as well as many current retirees, have found that their best laid plans have gone awry.
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The problem begins with those plans. When people make a retirement plan, they often assume unrealistically high returns on their retirement nest egg; underestimate expenses, especially for health care; and ignore the impact of having to sell stocks or mutual funds to generate income when the market is down.
It’s understandable why people do this. They want to have the comfortable retirement they deserve, so they manipulate their plans accordingly.
But what can advisors do to be sure that when clients start living their dream retirement, they will be ready for anything?
The answer is in the retirement plan, or more accurately, plans.
Although having a retirement plan is a start–so many people have none at all–one plan is not enough. Many successful enterprises have been achieved because those involved constructed a variety of scenarios–read plans–with a variety of methods for dealing with whatever scenario actually occurred.
Advisors can help their clients do the same by helping them design three different retirement plans: a worst case or subsistence scenario, a moderate scenario, and a best case scenario.
Worst: The worst case or subsistence plan involves putting together a plan of income and expenses that allows the client to meet survival needs but not much else. Expenses like housing, food, transportation, health care and other necessities would be met, but the client’s income would not allow any unnecessary expenditures. Items like travel, entertainment or eating out would not be part of the subsistence plan.