Good Planning is About a Lot More Than Money
Planning for retirement is, for many people, more of a challenge than they anticipated. Even before the question of money can be tackled, a good plan requires that each individual envision the kind of future he or she wishes to create for himself. As a result, good retirement planning requires not only a bit of creativity but also a considerable amount of thoughtfulness and self-awareness.
For married couples, the challenges can be more complex. Imagine, for example, a case where Mom has finally launched the children and is ready to spend time travelling and enjoying her new-found freedom, but Dad is ready to settle down to playing golf after a career of hectic business travel. How can such a couple create a retirement for themselves that incorporates – or at least balances – each of these visions? It can be done, as long as our retirees are open, honest, a bit creative, and willing to compromise. If those traits are present, the couple described above will probably be fine.
Unspoken Assumptions Along the Way Can Derail Retirement Plans
Despite its challenges, the scenario described above is manageable because it assumes not only that our retiring couple arrives at a certain life stage ready to think collaboratively about their retirement, but also that they have cooperated in building enough wealth to have some flexibility with regard to their future plans. But what if that is not the case? What if one of the spouses has made more-or-less unilateral decisions along the way that impact the couples’ financial and situational flexibility? What if there was never a discussion, much less a mutual agreement regarding those decisions? That can happen, and it happens more frequently than you might imagine.
Take, for example, the case of Bruce and Marianne Bates, a working couple in their 40s who were happily married, had two young children, and were well on their way toward financial security and a comfortable retirement. At one point, they decided to move to a different part of the country in order to be closer to Bruce’s elderly parents. Bruce had found a job in the new location, and though it would pay a bit less than he had previously earned, he figured that the difference wasn’t material. Marianne, a nurse, had always been able to find solid employment, and so everybody assumed that the family’s finances would continue pretty much as they had before the move. The Bates’ new house was a little more expensive than their old one had been, but Marianne had identified it as her ‘dream home’ and Bruce felt like he owed it to her to help make the move easier. Prices in general in their new city were a bit higher than they had been used to, but Marianne had a lot of job possibilities, and surely that would help them make up the difference.
Then everything changed.
Life Happens – And We Need to Adjust
A couple of months after they moved, the Bates’ youngest son got sick. Marianne, being a nurse, took charge of his care with particular zeal. It took a couple of years, and a lot of additional medical expenses, but the child did eventually fully recover. The family, on the other hand, never really adjusted or recovered financially from the experience. It wasn’t just a matter of the additional medical expenses, though those did play a part. What really happened was that Marianne, without being open about it and without a willingness to discuss the matter, made two decisions that had a very significant impact on the family’s financial future.
First of all, Marianne decided not to go back to work. Effectively, she decided to retire and devote all of her time to her family. That was an understandable decision for a mom who had just had a significant health scare with one of her children. But the problem wasn’t that she wanted to change her career path per se. The problem was that she denied wanting to make this change and wouldn’t engage in a discussion about what the family might need to do in order to adjust for a loss of between 25%-35% of their expected income. For many years Marianne kept insisting that she wanted to continue with her previous career in 6 – 12 months, but something always came up to prevent it. Who knows: she may not have known herself that she had made the decision, but after a while it was clear that she had.
The second decision that Marianne made was to send both of their children to private school, even though the Bates’ plan had always been for them to attend local public schools. One got the impression that, after her son’s illness, Marianne was simply unwilling to even consider choices that she felt might be ‘inferior’ in any way for the kids, no matter what the cost. She had grown emotional blinders when it came to their children, and she wouldn’t talk about it.
Open and Honest Communication Is the Key
These circumstances would have been very challenging for any family. But the Bates’ refusal to honestly face their new circumstances, coupled with their unwillingness to consider any changes in their behavior or lifestyle that might help them adjust financially, virtually destroyed what had once been a very bright financial future and a very secure retirement plan.
The combination of higher expenses as a result of their expensive new house and their school choice, combined with a family income that was only 65% – 75% of what they had expected, resulted in the Bates having to spend down almost all of their taxable retirement savings in order to maintain their current lifestyle. With those funds nearly depleted, they then cut back on 401(k) contributions just to meet their current cash flow requirements, even though doing so is very tax inefficient and is helping to compound their long-term problem. The bottom line is that they no longer have the funds to retire safely. Bruce is reluctantly facing the fact that he will have to work as long as he can, possibly into his 70s, but nobody knows if this will be possible. Bruce and Marianne still have not truly addressed their income/spending imbalance, and so the seriousness of their situation is currently being masked only by the fact that Bruce continues to work.
As for other long-term aspects of their finances, the Bates are still in denial. They would like to discuss leaving a legacy for their children, but in fact there will in all likelihood not be anything left over for them. What may be worse, Bruce and Marianne may in fact need to burden their children later in their own retirement, since they are very likely to deplete their own savings and need supplemental income later in their own lives.
Ignoring a Problem Doesn’t Make It Go Away
Could all this have been prevented? Most of it could have, though the adjustments would have taken courage and would have entailed a certain amount of pain. The key, however, would have been for Marianne to come to terms emotionally with her experience, to truly sort out her feelings, and then be willing to make adjustments that were financially appropriate for her new priorities. She could have indeed decided to retire early without jeopardizing the family’s long-term financial health if she and Bruce had been willing to make other changes to their lives.
In the end it wasn’t really financial considerations that held the Bates back. What got them into trouble was their own unwillingness to honestly consider and talk about their feelings and desires regarding their money.