Planning for the Worst is the Best Thing You Can Do

7 Principles of Retirement Planning, Principle 2:

Most of the time when we make a plan it doesn’t work out exactly as we envisioned it would. From planning for a holiday party to taking a big trip, we almost always have to adjust what we’re doing once we are in the moment. Having to deal with the worst possible outcome is mercifully rare. Maybe your flight was delayed, but at least the plane still arrived safely.

We encounter countless hiccups in our everyday lives, both small and large. It’s the reason Tide makes on-the-go stain removal sticks and it’s the reason we have car insurance. In your retirement plan, having long-term care insurance is a way to prepare for a similar hiccup, but having a will and life insurance are ways of being prepared for the absolute worst.

The strange thing is that when you enter retirement, the “worst” outcome is no longer dying – it’s actually living too long. At the top of the list of most retirees greatest fears is “outliving my money.”

It’s an understandable fear. Since 1900, the average life expectancy has increased by more than thirty years. As of 2014, a 65-year-old woman could expect to live at least another 20 years, and a man could expect another 18. At least one member of a 65-year-old couple is looking at a 90% chance of living to 80 or beyond, a 50% chance of making it to 90, and a 20% chance of seeing their 95th birthday. That’s just the average. If Willard Scott was still on the air, he would probably have to start announcing birthdays for people who hit 105 because reaching 100 is starting to become much more common place.

As retirement is getting longer, it is also getting more expensive. If you’re in good health at age 65 and your family tree is packed with people who lived long lives, common wisdom is to plan on living at least another 30 years. And since that number is on the rise we encourage our clients to plan for retirement lasting at least 35 years.

Nothing in life is guaranteed, but that doesn’t mean the worst will always happen. You can plan for the best and be prepared for the worst without being a pessimist. We encourage our clients to plan as a “cautious optimist,” knowing the worst could happen, but expecting the best.

Our recommended approach is simple: plan exhaustively, save extensively, invest wisely, spend appropriately and consult your guides. We covered planning in part one of this series, and we’ll cover the others in the coming weeks.

For now, you can download our life expectancy fact sheet by clicking here.