Written by Ben Carlson

Retirement planning can be a daunting prospect. The entire process of trying to plan for something that is decades out into the future is overflowing with uncertainties, assumptions, and guesswork. That is why so many people put it off. While it’s something recognized by most people to be vitally important, most people don’t think it’s urgent, so they put it off to focus on what’s right in front of them right now. How is one ever supposed to make rational decisions in the face of such uncertainty?

 Here’s my list of uncertainties involved in the retirement planning process:

  • Future financial market returns
  • The future path of interest rates
  • The severity and timing of bear markets
  • The magnitude and timing of bull markets
  • The sequence of your returns
  • Your personal spending needs
  • Your financial needs and desires
  • Where you are in your financial lifecycle
  • How much longer you plan on working
  • What you plan on doing with your money some day
  • How long you’ll live after retirement
  • Whether you’re going to be a net saver or spender in the near future
  • Your current and future income levels
  • Your ability, willingness and need to take risk
  • How your perception of risk will change over time
  • Unexpected life events and challenges
  • Withdrawal strategies during retirement
  • Future tax rates
  • Your future savings rate
  • Social security elections and benefits
  • Healthcare expenses
  • Inflation
  • Changes in the cost of living where you live
  • Your debt levels
  • How many people are dependent on you financially
  • Insurance needs
  • Your ratio of human to financial capital

    • How is one ever supposed to make rational decisions in the face of such uncertainty?

    First of all, you have to understand that financial planning is a process, not an event. Investors are too easily distracted by all of the underlying assumptions involved in creating a comprehensive plan. Yes, those assumptions are important, but how you react when life invariably gets in the way is far more crucial. A real world plan rarely plays out like it does on a spreadsheet. Therefore the implementation of the plan is the real key to success.

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