Five Reasons You’ll Blow Up Your Retirement Plan

Three women pack boxes in preparation for a move.

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A retirement plan doesn’t start with how much money you have or how you invest it. Rather, the numbers and strategies follow your needs and goals. And guess what? Life never stops happening, so it’s best to be prepared when it comes to changing your retirement plan when life changes.

I’m still a long way from leaving the workforce, but I’ve already blown up my retirement plan. Twice.

First, I planned to retire in the verdant California mountains, passing the time hiking and sipping fine wine. But the increased frequency of destructive wildfires made that too risky. So, I changed my plan to becoming a global vagabond, exploring one country after another. Having kids blew that idea up. Now, I want to spend my golden years near my children in hopes of one day helping to raise grandchildren.

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Some people may think this is just the whimsy of someone who’s too far removed from retirement, that I’m only fantasizing about my retirement dreams. But that’s the purpose of a retirement plan — achieving your goals and dreams.

Since those things can change dramatically, rendering your initial plan useless, sometimes you’ve got to blow the whole thing up!

What I mean by “blowing up” your retirement plan is more like “re-planning.” You adjust your plan to reflect your new situation and desired future. That can take the form of various modifications — spending more or less money, moving funds from one account to another, delaying Social Security — all of which is better done with the help of a financial adviser, who can professionally revise your plan to better suit your “new” retirement.

Take it from a man who knew quite a bit about blowing things up: Dwight D. Eisenhower, who said, “Plans are worthless, but planning is everything.”

It’s impossible to know exactly how your retirement will unfold. But there are some common motivations for blowing up a retirement plan. So, here are five reasons why you might find yourself reaching for the proverbial dynamite.

1. Your retirement reality doesn’t meet your retirement expectations.

Disappointment is the gap between expectation and reality. That’s how some people find retirement at first, a disappointment. After all, how will you know what it’s like until you live it?

You could find a gap between expectation and reality in your retirement lifestyle. For example, you may have a million things you want to do in retirement only to find none of them makes you feel as happy as expected. But the gap is often financial.

Consider that a 2021 Gallup poll found more than three-quarters of workers expect to rely on part-time work as a source of retirement income. However, 85% of retirees say part-time work is not a source of income at all. With people generally living longer, it’s not unreasonable to expect to continue working longer, too. Yet, once in retirement, many people find a disinterest, an unexpected health issue or the lack of work opportunities keeping them from doing so. In that case, you would have to revise your plan to make up for the income shortfall.

Set your expectations too high, and reality will force you to adjust your retirement plan — and, certainly, lower those expectations.

How to prepare: Ultimately, you shouldn’t count on retirement funds that may never materialize. Part of the planning process is to determine how much you will receive from your income sources (retirement accounts, Social Security, pension, etc.) to cover your expenses throughout retirement.

Still, how do you know it’ll be enough? How do you know you’ll be happy? If you have the flexibility, consider taking a retirement “trial run.” Either use a block of vacation days or reduce your working hours to spend time at home and experiment with what retirement might feel like. Track your daily activities, spending and emotions. This can give you a good taste of retirement reality. (Read more about doing this in the article Retirement Dating 2.0: Before You Jump, Test the Waters.)

2. You need a new identity.

Believe it or not, once you enter retirement, you could forget who you are. That's because a psychological shift takes place leading up to and during retirement. It can be for better or for worse. Research published in the scientific journal Current Psychology suggests workers who identify strongly with their jobs but have few social interactions outside of work struggle with the post-career identity change.

Fortunately, retirement can be long enough to not only explore what you want to do in life but also who you want to be. It’s why many older adults today try new hobbies, launch businesses and even embark on second careers. It’s possible to create several new identities — the caregiver, the traveler, the athlete — over the course of your retirement. All of which can change the way you spend and even live.

How to prepare: Certainly, you should consider trying new things. But the most important step may be to get comfortable spending money on things you enjoy. A survey from the Employee Benefit Research Institute of 2,000 Americans ages 62 to 75 found just over 4 in 10 (43%) respondents reported that they planned to spend down all or a significant portion of their assets in retirement.

Hopefully, you can strike a balance in your plan between managing and enjoying your wealth. Of course, financial security is crucial. You don’t want an expensive new hobby or new venture, like working on old cars or running a business, to put your retirement at risk. You don’t want to make a costly mistake in retirement, because you don’t get to save all over again. But you also don’t want to miss out on opportunities, because you don’t get to live life all over again either.

3. You experience a health problem.

Health care is one of the biggest retirement expenses, about $315,000 for an average retired couple age 65 today, according to the Fidelity Retiree Health Care Cost Estimate. Yet, it’s one of the hardest to plan for. Unless you have a chronic medical problem, you won't know with certainty what your health will be like in the future.

An unexpected health problem could lead to high medical expenses as well as prevent you from doing some of the things you had planned in retirement. It could also require having to relocate to a more accommodating residence or make costly modifications to your home. In other words, a lot in your retirement plan is riding on your body.

How to prepare: Health coverage is key. If you retire before age 65, when Medicare kicks in, you want some kind of coverage. Options include joining your spouse’s plan, if allowed, or buying coverage through a health care exchange. Once you’re eligible for Medicare, shop around for a supplemental plan, because Parts A and B don't cover everything, such as prescription drugs.

Another thing Medicare doesn’t cover: long-term care. Not everyone will need it. But considering its high costs, it wouldn't hurt to consider your ability to pay out-of-pocket or the need to buy long-term care insurance.

Most important, live a healthy lifestyle as early as possible. “Health is wealth” becomes truer with age. Exercise regularly, drink moderately, smoke never. Those three things alone can greatly boost your health later in life. Find a thing, like pickleball or yoga — anything that gets you moving 20 to 30 minutes a day.

4. Your life changes — in a big way

Life can always find a way to get messy — no matter how much money you have or how old you are, working or retired. The kids move back in. We lose loved ones. Or we find new love.

Divorce is common among older adults, called gray divorce. Research published in The Journals of Gerontology found that more than 1 in 4 people getting divorced in the United States are over age 50, and over half of those divorces happen after 20 years of marriage.

Major life events can force people to wholly reconfigure their plans for the future. In terms of a divorce, it can create a lot of financial challenges for both former spouses and the whole family.

How to prepare: A part of your retirement plan may include what happens to your assets upon your death. To make sure your wishes are fulfilled and your loved ones protected, keep your beneficiaries up to date.

It’s common for people to name them once and then forget about them. Remember, the beneficiaries listed on your assets, such as your retirement accounts, override your will. Divorcing and remarrying without updating your beneficiaries could create an emotionally difficult situation for your family.

5. The world changes — in a big way

Sometimes, there are weeks where decades happen. The world changes dramatically, quickly. The COVID-19 pandemic is a good example. From geopolitical conflicts to technological advances, tidal waves of change can forever alter the way we live now and in retirement.

One such circumstance unfolding right now is climate change. It will likely change where and how people live. A report from the National Oceanic and Atmospheric Administration says sea levels along the U.S. coastline are projected to rise, on average, 10 to 12 inches by 2050. Barring any drastic prevention measures, that would make some popular retirement destinations nearly uninhabitable. Instead of flocking to the Sunshine State, those retiring in the next 30 years may opt for higher ground in the Rocky Mountains.

How to prepare: Extinction-level asteroid impact? Sure, it’s impossible to prepare for cataclysmic events. But it’s possible to think about how the world could change years from now and create some contingency plans.

For one, think carefully about where you retire and any risks involved. Further, consider your own impact on your environment and how you can help improve it. Most of all, be flexible.

Would you be OK with moving to a different state or even a different country in retirement, if it’s safer? The same goes for your money. You don’t want to lock up your wealth in illiquid assets when there's always a chance you may need to access funds quickly.

The meaning of wealth

If life can be so uncertain, then why make a retirement plan in the first place? What's the point of sacrificing some things today to save for a future you don't know will come to fruition?

The answer is: options. You create and follow a plan to grow wealth, because wealth helps you pivot in life as painlessly and seamlessly as possible. As comedian Chris Rock put it: “Wealth is not about having a lot of money; it's about having a lot of options.”

As the reasons above show, having a lot of options is priceless when planning.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Jacob Schroeder is a financial writer covering topics related to personal finance and retirement. Over the course of a decade in the financial services industry, he has written materials to educate people on saving, investing and life in retirement.

With the love of telling a good story, his work has appeared in publications including Yahoo Finance, Wealth Management magazine, The Detroit News and, as a short-story writer, various literary journals. He is also the creator of the finance newsletter The Root of All (https://rootofall.substack.com/), exploring how money shapes the world around us. Drawing from research and personal experiences, he relates lessons that readers can apply to make more informed financial decisions and live happier lives.