How to Improve a Failed Retirement Plan

Building a retirement and income plan is a process, not a single test.  Each iteration is only a snapshot dependent on the market environment and assumptions used at that moment in time. Planning for retirement is an on-going exercise that can and should be repeated at least yearly.  

If you find that the plan you are creating today isn’t measuring up, read on to consider some of the options for raising the bar on your retirement and income plan.  

Save More (Efficiently)

Just saving for retirement is rarely enough. It is important to save as efficiently as possible and put those savings to work within investments that can grow and compound over the many years between now and retirement. If all your savings are sitting in a money market or savings account, or worse a checking account, you need to elevate your strategy. Even today’s healthy savings account interest rates will not be enough to effectively build a retirement nest egg long term.  

By utilizing the accounts and benefits available to you, such as 401(k)s, IRAs, HSAs, annuities, and tax-efficient investments, you can make your savings go further. As the saying goes, it's not what you make but what you keep.  By minimizing taxes through tax-deferred or tax-free accounts, and keeping your money growing over time, you will be able to build up a future retirement income that can satisfy your lifestyle.  

Invest Better

Building an investment portfolio that aligns with risk tolerance and retirement goals doesn’t have to be complicated, but it does have to be maintained and monitored.  One of the common mistakes many investors make is considering their different accounts as islands that once established can be left alone.  Company-sponsored retirement plans, IRAs, and even brokerage accounts should be coordinated pieces in the overall retirement puzzle.  

When taken together, all the accounts associated with a single goal should be cohesive.  Defining clear methodologies for asset allocation, asset location, and diversification across accounts will ground your plan and allow you to focus on maintaining a single strategy.  Managing portfolios in different accounts will still require rebalancing, reallocation, and in the case of brokerage accounts, tax-efficient investment management.  Finding support for this work through a local or national financial advisor will provide additional discipline.  Seeking unbiased, outside advice to manage the ups and downs of the market and changes to your circumstances will keep your plans grounded.  

Spend Less

Planning for a future (or current!) retirement is less about finding a single “magical” number and more about developing an understanding of how your cash flow will dictate your success.  

If you find that the timeline for your future retirement is not on track, holding all other factors equal, spending less will leave more money to be put aside to boost your retirement savings.  The later you start to make these changes, the more you may need to put aside. Striking now will leave you better off than waffling for another year, and only starting then.  By starting today, and cutting back, you’ll have more opportunities in the future to loosen up if you have caught up to your savings target. 

Time is the greatest asset for building your nest egg through compound returns, but you still must do the hard part of putting that money to work for it to grow adequately. 

Work Longer

Since the 1970s, when comprehensive retirement data began to be tracked, the average length of retirement for both men and women has increased.  In 1970, the average man could expect to spend 13 years in retirement while the average woman could expect nearly 17 years in retirement.  These numbers have increased to 19 years and 21 years respectively, as of the most recent data.  At the same time, the average age of retirement has barely changed [Data Sources: OECD (2023)]. 

Even though most Americans today are retiring slightly later than the previous decades, they can still expect to spend more years in retirement due to significantly longer life expectancy.  This requires detailed preparation to avoid overspending. Planning is paramount given how little the average retiree today depends on guaranteed sources of income as compared to the more pension-heavy retirements of the past.

Working longer, and therefore shortening the length of retirement even slightly can have drastic impacts on the success of a retirement plan.  For more retirees, working an additional year or phasing into retirement by shifting from full-time to part-time work can ease the withdrawal burden while padding your savings for another year or two.      

Die Earlier

This isn’t a serious option and obviously shouldn’t be.  However, the length of your retirement will indeed be a huge factor in your likelihood of a successful retirement plan. The longer you live, the more assets you will need to support your lifestyle and the more likely you may be to have health-related issues that may increase your costs due to supportive care, hospital visits, or other medical needs. If these issues are relevant to you, then exploring asset and lifestyle protection strategies such as long-term care policies may make sense for you.