These problems also confront millennials, who, research suggests, aren’t saving enough, who don’t have pensions like previous generations did, and who will likely be facing a future of reduced Social Security payouts.
Great (And Lesser) Expectations
Given the changing circumstances of retirement savings, each plan written by an advisor should have an early retirement option, experts say. It is up to the advisor to anticipate horror stories and figure out a way to survive them.
There are many ways a retirement plan can blow up, Blanchett notes—say, if the client runs into an unexpected health crisis or loses his or her job. Without a Plan B, you’ve wrecked years of work.
Take, for example, a 55-year-old who plans on retiring at age 65 and plans to take out an initial withdrawal rate of 4 percent.
If the retiree suddenly decides to quit at age 55, Morningstar says, now he or she will need 25 percent more savings “to achieve the same income level with the same degree of success, assuming no retirement age variability.”
If a person planned to retire at age 70 but then quits at age 55, that retiree might need 50 percent or 100 percent more in savings, Blanchett says.
It is difficult to know which clients will decide to short-circuit a plan. Blanchett says advisors should build that uncertainty in.
“Financial planners,” Blanchett says, “should consider modeling early retirement to prepare clients for the (likely) possibility that it may occur, especially for those targeting a retirement age past age 65.”
To avoid disaster, planners should be in frequent communication with their clients, professionals say. They should start imagining the worst outcomes in the decade or so before the client retires.