Upticks: Reasons Retirement Plans Fail and Ways to Avoid Them
By Luke Sullivan on April 25, 2025
Ever wondered why some retirement plans just don’t work out? Jake and Cory are here to break down some reasons behind these failures. From underestimating expenses to dealing with market ups and downs, they share practical tips to help keep your retirement on track. Curious about how to avoid common pitfalls and make the most of your savings? Tune in for insights to help you avoid some retirement mistakes.
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Read an overview of the conversation below:
Underestimating Retirement Goals
One of the primary reasons retirement plans can fail is the underestimation of retirement goals. Many individuals believe they can live on a significantly reduced income once they retire. Jake highlights this issue by sharing a common scenario: “People may say, ‘I’m making $120,000 a year, but I can live off of $3,000 a month.’ However, they often forget to factor in expenses like annual trips, mortgage payments, and other lifestyle costs.”
To help avoid this pitfall, it’s important to have a realistic understanding of your future expenses. Consider all aspects of your lifestyle, including travel, hobbies, healthcare, and unexpected costs. Being conservative in your estimates and planning for higher expenses can provide a buffer and help prevent financial shortfalls. Additionally, it’s beneficial to regularly review and adjust your budget as your circumstances change. This proactive approach helps ensure that your retirement plan remains aligned with your evolving needs and goals.
Lifestyle Creep
Lifestyle creep refers to the gradual increase in spending as one’s income grows. Cory explains, “As their income grows, it’s not uncommon for people’s expenditures to grow along with their income. This can lead to spending more money in retirement than initially planned.”
To help combat lifestyle creep, it’s important to maintain a disciplined approach to spending and saving. Regularly review your budget and make sure that your spending aligns with your long-term financial goals. Additionally, consider setting aside a portion of any income increases for savings and investments rather than increasing your spending. Implementing strategies such as automatic savings transfers and setting clear financial priorities can help you stay on track. By consciously managing lifestyle creep, you can preserve more of your income for future needs and investments.
Lack of Purpose in Retirement
Retirement is not just the end of a career; it’s the beginning of a new phase of life. Cory emphasizes the importance of having a clear purpose in retirement: “If someone doesn’t have a clear idea of what their life is going to look like when they’re retired, it can lead to a lack of direction and sense of contribution, which can result in depression and financial mismanagement.”
To help avoid this, plan for your retirement activities and goals. Whether it’s traveling, volunteering, pursuing hobbies, or spending time with family, having a purpose can help provide structure and fulfillment. This, in turn, can help you manage your finances better and potentially avoid unnecessary expenditures. Engaging in activities that bring joy and satisfaction can also help increase your overall well-being. Consider exploring new interests or rekindling old passions to help your retirement years feel more enriching and meaningful.
Adjusting Investments During Market Volatility
Market volatility can be a significant source of stress for retirees. Jake warns against making drastic changes to your investment portfolio during turbulent times: “If you capitulate and sell all your stocks during a market downturn, you risk doing permanent damage to your financial plan.”
The key to managing market volatility is to stay the course and avoid making impulsive decisions. Make sure that your investment strategy is aligned with your long-term goals and risk tolerance. Regularly review your portfolio with a financial advisor to make informed decisions and maintain a diversified set of assets. Diversification helps spread risk across different asset classes, helping reduce the impact of market fluctuations on your overall portfolio. Additionally, having a well-defined investment plan that includes regular rebalancing can help you navigate market volatility more effectively.
Emergency Situations
Unexpected emergencies, such as medical issues or natural disasters, can derail a retirement plan. Though Jake and Cory do not see this happen often. Jake shares that adequate health insurance coverage is important to mitigate these risks: “The key is to have health insurance and a max out-of-pocket limit to help prevent draining your retirement savings.”
Additionally, planning for potential long-term care needs and having an emergency fund can provide a safety net. Regularly review your insurance policies to confirm they cover potential risks. Having a contingency plan for emergencies can help you navigate unforeseen challenges without compromising your financial stability. It’s also wise to consider other types of insurance, such as disability and life insurance, to protect against various risks. Building a robust emergency fund that covers several months of living expenses can help bolster your financial security during unexpected events.
Regularly Updating Your Financial Plan
A financial plan is not a static document; it needs regular updates to reflect changes in your life and financial situation. Jake emphasizes the importance of reviewing and updating your plan: “The key with the plan is to create one and update it regularly. At a minimum, once a year, and ideally two or three times a year.”
Regular check-ins with your financial planner can help you stay on track and make necessary adjustments. Life events such as changes in health, family dynamics, or market conditions may prompt a review of your plan. Keeping your plan current helps ensure it remains relevant and effective in achieving your retirement goals. Additionally, these regular reviews provide an opportunity to reassess your goals and make any necessary adjustments to your investment strategy. By staying proactive and engaged with your financial plan, you can better adapt to changes and maintain a clear path toward your retirement objectives.
Final Thoughts
Retirement planning is a dynamic process that involves careful consideration and regular updates. By understanding and addressing common pitfalls such as underestimating goals, lifestyle creep, lack of purpose, market volatility, emergencies, and the need for regular updates, you can help create a financial plan that works for you.
Thank you for tuning in, we hope you have a great week!
