The Retirement Risk You Should Never Ignore
Peter Reagan

Retirement plans are built for what’s expected – steady growth, predictable expenses, “normal” economic cycles. But life rarely cooperates. The real risk isn’t what we expect – it’s what we don’t. Here’s what’s hiding in that blind spot…

President Dwight D. Eisenhower reportedly said, “Plans are worthless, but planning is everything.”

While he was clearly exaggerating, Eisenhower makes a valuable point: planning has its limitations.

And this idea applies to retirement planning, too.

Retirement planning can be incredibly valuable, and retirement plans can give you a path to run on as you work to reach your retirement goals. But plans aren’t prophecies able to definitively pick the smoothest, easiest path to your destination.

Retirement planning specifically is usually based on an unspoken assumption... 

The future will look like the past

And when you’re trying to predict the future so that you can live in comfort after you stop working, pretending that you can guess everything that might happen is a dangerous assumption.

But it’s exactly that assumption that much retirement planning takes as given truth. That’s why, when considering how to make sure that you will always have enough money at the end of the month in retirement instead of having too much month for your money, you get “common sense” ideas for how to accomplish that.

For example, an Associated Press article offers 8 Tips to Stop Worrying About Running Out of Money in Retirement.

And those ideas? Straightforward things such as having a baseline for your spending so that you can evaluate whether you are spending too much.

In other words, since you’ll be on a fixed income in retirement, live on a budget.

Or there is the suggestion to adjust how much you pull out of investments and retirement accounts when the economic situation demands it.

Then, there is the idea of creating a “recession buffer,” which is just a fancy way of saying that you should have some funds outside of your investment portfolio in case your investments don’t pan out the way that you want them to.

Sounds like a fancy way of saying that you should have a savings account.

To be fair, the article does something that too few planners touch on: use tax-advantaged vehicles to legally reduce your tax burden when possible.

But then it goes back to saying that you should consider using your home equity in an emergency.

With the possible exception of using tax advantaged vehicles, none of this information is particularly unusual or clever.

Sometimes not being clever is good. Other times, though, it makes sense to look outside of the “common sense” box.

Before we get to that, though, let’s talk about how other people giving advice for people planning for retirement…

Focus on a few other things

For example, Cameron Huddletson with the AARP talks about why retirement planning should take into account the impact of inflation, which is a great idea! The suggestions for how to plan for and deal with inflation in retirement, though?

Balance your portfolio. Maximize your Social Security benefits. And a couple of other generic things.

Not bad advice, but nothing that you probably aren’t already doing. If you’ve been thinking about this for any time at all, that’s just common sense advice.

The problem with common sense and with retirement planning in general is that it tends to focus on the predictable changes to the economic and investment landscape. In other words, it doesn’t account for the unexpected.

And this is where the quote from Eisenhower really becomes clear in its meaning. 

You make plans for what you can expect to happen, what you can anticipate. Usually we think the future will be like the past (only with fancier phones). The truth is, we won’t, we can’t think of everything.

It’s impossible.

Very few people, even when the signs seem obvious in retrospect, predicted World War II before it happened.

Very few people accurately predict economic crashes or any other big shifts with any kind of accuracy. Those who do make accurate predictions (the Ray Dalios and Michael Burrys and Warren Buffetts of the world) become wildly wealthy... but for every Warren Buffett there are thousands of wanna-be-Warrens making predictions, taking risks and putting themselves off-track by years if not decades.

There are some certainties. For example, we can predict that inflation will continue to corrode our purchasing power because it always does. What we can’t predict is how bad the effect will be. The Federal Reserve's goal is 2% inflation, everyone knows that. Official data since the founding of the Federal Reserve in 1913, however, tell us that inflation on average has been 4.5% per year! This alone tells us that plugging the typical inflation expectation into your retirement calculations isn't a good idea...

Furthermore, planning for “normal” ups and downs in the overall economy often don’t take into consideration the extreme or the wildly unexpected situations.

How can they? They’re working from the expected. Taleb talks about this in his book Antifragile. He explains that risk management professionals look in the past for data on a "worst-case scenario" and use it to estimate future risks. What the don't notice is that, in the past, that "worst-case" event when it happened actually exceeded the worst case at the time. Ultimately, Taleb advises us to "prepare for what has not happened before, assuming worse harm is possible." 

It's a good book, I highly recommend it. But how does that insight help us plan for retirement?

Planning for an unknown future

Sometimes they’re black swan events, massive upheavals in a society or in the world. Russia’s invasion of Ukraine, for example, or the Covid pandemic (trust me, no one saw that coming!)

And sometimes, they’re much smaller and more personal. With a disproportionate effect on your plans, when you’re least ready for it.

An unexpected medical bill. A last minute trip across the country to witness the birth of a grandchild… or to hold the hand of an ailing sibling. 

Or (and this actually happened to a friend of mine) you decide to shop around for homeowner’s insurance – and when you’re between providers, a tree falls on your house. 

There’s any number of unlikely surprises life can offer you – between personal experiences and stories we’ve heard, we could spin out scenarios like this all day.

The point is that you can’t plan for these things. “Expect the unexpected” is good advice – but where does that leave you in terms of practical decisions?

Your typical retirement planning can’t do much for unexpected events and expenses in retirement beyond “have a savings account” and “everyone should set aside some emergency funds.” 

Now, I’m not suggesting that you not have a savings account (but be mindful of their shortcomings). And I also believe an emergency fund is a prudent addition to any resilient retirement plan.

What I am suggesting is that in addition to these, you have a way to access liquidity from your investment portfolio when you need it and don’t have as much as you need. (Here’s why liquidity is important.)

Most assets force you to choose between growth, stability, or access. Physical precious metals are unusual because they offer all three – especially when plans fail. Better still, physical precious metals are some of the strongest inflation-resistant investments. 

Liquidity and inflation resistance are just two of the many benefits of investing in precious metals – learn more at the link. If you want to further explore how physical precious metals diversification can benefit you and your family, get started here. 

Peter Reagan is a seasoned financial market strategist at Birch Gold Group with over 15 years of experience in the precious metals industry. He has been featured in several leading publications, including Newsmax and Zerohedge. At Birch Gold Group, Peter leverages his deep market insights to help educate customers on how they can diversify their savings into gold and other precious metals. His commitment to education has made him a trusted thought leader in the field. In addition to the Birch Gold website, you can follow Peter on LinkedIn.

www.birchgold.com