Here are just a couple of the articles that caught my eye of late.

Retired, But Working

This article addresses the impact of working beyond one’s “normal retirement age” and how it introduces uncertainty and complexity into the retirement equation, stating that “Working during retirement, by need or choice, throws many traditional retirement plans off track.”

We see it as “all good,” unless the work is stressful and unhealthy. We think it’s important however to think of retirement in three stages:

  • Transition: Period where you’re moving from full-time work to full-time retirement.
  • Early retirement: Period where you’re actively engaged in other activities with a “lumpy” spending pattern.
  • Late retirement: Period where you’re looking for security, and income to cover late-in-retirement expenses.

Bite-sized planning is a lot less daunting, by which I mean that planning for each of these stages of retirement is much less daunting than trying to figure out how to cover the financial needs of an unpredictable length of time.

Investment advisors are recommending unrealistic retirement goals

This particular article makes the claim that most financial advisors and mutual fund companies are recommending unrealistically high retirement income targets, and in the process are fostering unwarranted anxiety among savers. At least, this is the conclusion of a new book by Frederick Vettese, Chief Actuary of human resources consulting and technology firm Morneau Shepell.

I don’t want to pick specifically on advisors, but rather would caution the entire financial services industry about their retirement planning.

By using withdrawal schemes that take retirees to a certain survival age based on a certain investment strategy with a certain probability, they are doing retirees a disservice. As I pointed out earlier this week in “6 Reasons Most Retirement Calculators Fail Individual Investors,” you can’t take simulated market performance and apply it to an individual investor’s retirement plan without looking at that individual’s likely behavior and personal situation in retirement. It simply doesn’t work!

Fundamentally, don’t plan to life-expectancy or just a few years beyond when you’re creating a retirement income plan. If you do, the plan will often miss the medical, home health care and long-term care costs that cause retirees to run through their money. These plans will need to reflect financial instruments beyond stocks and bonds if they are truly going to be workable for the retiree.