Why I Have a Plan B For Important Aspects of My Retirement Plan
After drawing up a retirement plan, you deserve to sit back and enjoy life as mapped out right? Uh…not if you want to avoid nasty surprises. That’s what Plan B’s are for.
A Plan B in retirement is a safety net for unforeseen challenges. While many people enter retirement with a well-thought-out primary plan, most do not think about a Plan B, which can help to smoothen the kinks as life happens.
1. Economic Changes and Market Volatility
Retirement savings are typically invested to generate income. However, market downturns or prolonged economic slumps can reduce the value of our investments significantly. Imagine having planned to withdraw 4% from your portfolio annually, and have the portfolio value slashed by 25% due to recession or runaway inflation pushing up living costs. Without a backup plan, the difficult choice is to cut back on lifestyle drastically or deplete your assets faster than planned. Both of which can have long-lasting repercussions.
Plan B: Viable counter-strategies could involve setting aside a more conservative cash reserve, tapping into home equity or having alternative income sources through part-time work or rental income. This way, you can weather economic downturns without compromising your lifestyle or investment principal.
2. Health Emergencies and Long-Term Care Needs
Healthcare expenses often increase with age, and long-term care is one of the most significant expenses in retirement. If you retire with adequate health insurance but then face a sudden need for assisted living, which isn’t fully covered, that can lead to financial hardship and emotional toil. Without a contingency, the cost of care will drain retirement savings.
Plan B: Investing in long-term care insurance or designating a portion of savings specifically for health-related expenses can safeguard against this risk. Another alternative might be to downsize or move to a more affordable area where healthcare costs are lower.
3. Changes in Family Dynamics
Unexpected changes in family situations, like helping adult children financially or caring for a sick spouse can also impact a retiree’s finances. This can throw the retirement plan into upheaval.
Plan B: Setting aside a “family emergency fund” can help navigate such scenarios. That’s why I advocate not paying off your mortgage fully as you enter retirement. You can tap into your home equity to access funds to tie you through the difficult period, and at 1 of the lowest borrowing costs.
Along the same vein, maintaining an overdraft account in retirement can also be a life-saver to cover short-term unforeseen needs.
4. Cost of Living
Inflation erodes purchasing power over time, especially if retirement income is fixed. You may have budgeted for monthly expenses based on current costs, but over 20 years, even a 3% inflation rate can almost double the cost of living. We are living longer so such a scenario is increasingly probable. Without adjustments, this fact can lead to reduction in the quality of life in later years.
Plan B: Strategies to counteract inflation include investments that have the potential to outpace inflation, such as stocks or real estate, alongside more flexible withdrawal rates. Relocating to places with a lower cost of living can also be an option.
5. Lifestyle and Personal Goals
Retirement goes beyond financial stability; it’s about quality of life. Some may face ‘hindrance’ to achieving our bucket list such as extensive travel due to unexpected physical or black swan events.
This was the case when my annual pilgrimage to Singapore to visit my parents and escape from the dreary Dutch winter was thwarted, due to border closure during the pandemic.
Plan B: Staying adaptable to changing circumstances means exploring other travel options or shifting the focus to alternative fulfilling activities. In my case, my husband and I ended up driving to southern Europe where we chanced upon Spain. It opened up a colourful chapter in our life, expanding our options and adding much joy. Though I wasn’t able to visit my parents, the warmth and vibrancy of the Costa del Sol rejuvenated my spirit, mind and body.By staying flexible and keeping focused on purpose and fulfilment, I was able to preserve my sanity.
6. New Life
Sometimes Plan B calls for flight instead of fight. This was the conclusion my S.O and I arrived at after a slew of regulatory changes make investing and retiring in the Netherlands challenging. Political change, war, environmental degradation are other examples that may warrant flight.
Plan B: ‘Transplanting’ your life counts as 1 of the biggest Plan B exercises. It requires thorough evaluation of financial, emotional and practical factors like housing, support system, cultural fit, lifestyle options, healthcare access and safety. Even if you believe in your forever home, it still makes sense to keep tap on places you like as a Plan B option.
We have the Malaysia’s MM2H (Malaysia My 2nd Home) retirement visa since a decade ago and it remains our Plan B, together with Spain, should it become necessary to leave the Netherlands for good. Both countries will provide us with a legitimate place to land, grow old and keep our retirement goals intact.
Safety Net
A successful retirement isn’t just about having a detailed retirement plan but also a Plan B for when things go awry. Plan B offers peace-of-mind and a safety net should we fall through the gaps.
“Plan A is what you hope for; Plan B is what saves you.”
Plan B for better peace-of-mind,
Savvy Maverick
(Main image: Artem Kniaz, Unsplash)
Disclaimer: The views expressed here are drawn from personal experiences and do not constitute financial advice in any way. Nothing published here nor should any data or content be relied upon for investment activities. Please do your own due diligence before making any financial decisions. Data and information cited from sources will not be updated after publication.
