You’ve Got a Plan. Now What?
Well, look at you! You’ve got a bright, shiny new financial plan and you are ready to execute. But just like that completely awesome Hippity Hop ball that I once got for Christmas, the sheen does eventually wear off your freshly minted financial plan. When is it time for an update?
Track Your Assumptions
Every financial plan, but most especially your retirement plan, is based on a plethora of assumptions. I suspect that you will think first of the investment rate of return assumption embedded in your plan, but TBH I am more concerned about the assumptions that are about you — your actions, your behavioral tics, your changing wants and needs.
These are the assumptions that I want you to check in on regularly (no less than twice a year, perhaps quarterly):
How much am I saving? Your financial plan made assumptions about how much you would sock away in your workplace retirement plan, your IRA, and/or your brokerage account to support your future retirement. Are you hitting those targets? Note: I am not asking about the balance of these accounts; I am asking about what you can control – your deposits.
If you have not been consistently hitting the mark, why is that? Did something change in your life that, objectively and unequivocally, prevented you from saving as you intended (such as a job loss)? Was your assumption of how much you could save simply unrealistic? Or was your failure to live up to your assumption more, shall we say, discretionary? If so, what’s your plan to change that going forward?
Has my goal changed? When you drafted your plan, retiring at the traditional age of mid-sixties seemed like a perfectly reasonable assumption. But now you have reconsidered, and you would like to peace out much sooner. Clearly, the plan you carefully crafted is no longer viable.
Perhaps your expectations have grown. The idea of retirement in a cabin in the Midwestern woods sounded ideal when you made the plan, but now you are thinking high-rise in the city. Or perhaps the change is much more prosaic — as your income has grown, your lifestyle has kept pace and you are not seeking a return to your lean post-collegiate milk-crates-as-furniture ways. (This is one of the pitfalls of many FIRE plans — the assumption that you will want to eat ramen noodles in a studio apartment in perpetuity.)
What big changes have happened since I made the plan? It should be obvious that if you have become a parent (or a parent again) since you developed your financial plan, you are in sore need of a refresh. Any number of financial planning elements now need updating, not the least of which is how much you can reasonably devote to your retirement goal.
We are also at the point in the demographic curve where a great number of Gen Xers are receiving inheritances from their parents. I am not necessarily talking about millions. Just enough of an inheritance to change your game: pay off a mortgage, fund a child’s education, pay for your long term care needs. Receiving an inheritance is absolutely a time to revisit the assumptions of your financial plan.
How are you feeling? My wish is that you enter retirement in robust health. Has anything changed in your health profile that could affect your financial picture? For example, if you have had a cancer event, no matter how successful the clinical outcome, your prospects for affordable long term care insurance have likely evaporated. If self-funding long term care was not on your radar before, now it needs to be.
(Side note: While you cannot control many aspects of your health, medical costs are one of the biggest expenses in retirement. Anything you can do right now to lower your risk of poor health later is worth doing!)
You will notice that I have not encouraged you to track the daily movements of the S&P 500, inflation rates or the health of the Social Security and Medicare systems. Of course assumptions you have made about these elements of your plan are incredibly important! However, these are not inputs to your plan that you have immediate control over. (Less immediately, vote wisely.) A hallmark of a well-constructed plan is that it does not require out-sized market returns to succeed and is not overly reliant on the very shaky American social safety net. My advice is to focus your mental energy on what you can control.
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