Planning for Uncertainty in Retirement

By Chris Duderstadt

November 15, 2023

Planning for Uncertainty in Retirement

Key Points – Planning for Uncertainty in Retirement

  • Controlling What You Can Control and Planning for What You Can’t
  • What Are Your Current and Expected Expenses?
  • Making Sure That Your Financial Plan Is Fluid and Forward-Looking
  • Planning for the Two Biggest Wealth-Eroding Factors in Retirement: Taxes and Health Care
  • 8 Minutes to Read | 24 Minutes to Watch

How Is It Possible to Plan for Uncertainty in Retirement?

Whether it’s politics, the economy, the status of the markets, or all the above, everyone seems to have that one family member that stirs the pot by bringing up those topics on Thanksgiving. Are you someone who likes to jump right into those discussions, or do you find a way to leave the table and watch football?

Planning for things that are out of your control can certainly be stressful when you’re entering a new phase of life like retirement. But believe it or not, you can plan for uncertainty in retirement. We’re going to explain how to plan for the many uncertainties that can arise in retirement so that you can have clarity and confidence about your financial life.

Schedule a Meeting Get the Retirement Plan Checklist

The Quest for Financial Independence

Retirement is something that people spend years and years and years pursuing. Dean Barber likes to think of retirement as achieving financial independence. It’s the point where you can wake up each day and do the things you want to do and no longer need a paycheck to do them. That’s a dream that everyone has, and a financial plan is needed to turn it into a reality.

However, no longer having a paycheck is arguably the biggest uncertainty that someone will have as they’re planning for retirement. Are you worried about outliving your money or spending too much in retirement? Add those uncertainties in with those things that can get brought up at the dinner table at Thanksgiving and things like the long-term health of you and your spouse. There can be a long list of uncertainties as you’re planning for retirement. Again, the recipe to combat them lies within a personalized financial plan.

When our advisors craft an initial retirement plan, they craft it in what Dean refers to as a fairy tale world. For example, both spouse will live long lives, there won’t ever be a bad market or political/geopolitical uncertainty, and everything will be grand. That’s what everyone hopes for, but…

“But once we do that, we know that it’s not reality. That’s why we stress test your plan and think of all the what-ifs that can happen.” – Dean Barber

We’re going to review several important aspects of what needs to be considered in a personalized financial plan. In addition to reading this article, we highly encourage you to review our Retirement Plan Checklist to help plan for uncertainty that you may face in retirement. Along with a checklist of 30 yes-or-no questions, it includes an age-based timeline of critical retirement considerations. Download your copy below!

Planning for Uncertainty in Retirement

Retirement Plan Checklist

Setting up a Spending Plan for Retirement

Notice that while we started out by mentioning uncertainties that are out of your control, we then mentioned several uncertainties that are within your control. When it comes to longevity risk, it’s pivotal to create a spending plan for retirement as a part of your financial plan. That starts with assessing your current needs, wants, and wishes versus what you expect them to be in retirement.

“The spending plan is basically going to be the foundation for your financial plan. There’s a big difference between spending $5,000 net a month and $8,000 net a month for retirement.” – Logan DeGraeve, CFP®, AIF®

Obviously, those will change as you approach and go through retirement. That’s because things that are personal to you like your goals and health will change, and so will the markets, political environment, and economy. As those things change, it’s important to update your plan accordingly. Once you’ve established what your needs, wants, and wishes are, you’ll put price tags on them.

You might be rolling your eyes about making a budget for retirement because that’s exactly what creating a spending plan is. But hear us out. Without a spending plan, how are you going to have clarity as you’re planning for the various uncertainties in retirement? No one likes budgeting, but it beats running out of money in retirement or being stressed out by the possibility of it.

“Sometimes, it’s really difficult from a mental perspective to go from being a saver to being a spender.” – Dean Barber

The Top Two Wealth-Eroding Factors in Retirement: Taxes and Health Care

Health care might not seem like a huge need as you’re heading into retirement. And hopefully it won’t end up being a huge need for you and your spouse throughout retirement. But even if you’re both healthy now, things can change in a hurry. As sad as it sounds, the possibility of you or your spouse requiring a long-term care stay or passing away unexpectedly is an uncertainty that needs to be planned for in retirement.

Yes, exercise and proper nutrition can go a long way to staying in good health. However, the planning that we’re talking about here is actually for the surviving/healthy spouse. They’re likely going to bear the brunt of the financial burden of their spouse’s health issues. Does your health insurance coverage adequately meet the current AND potential health care needs for you and your spouse? And have you considered long-term care insurance?

There are a lot of people who wait to retire until they’re eligible to get on Medicare (age 65). Finding insurance on the marketplace or other alternatives to Medicare can be very pricey, but Medicare isn’t free either. No matter when you’re wanting to retire, make sure that your current and future health care spending for you and your spouse is accounted for within your spending plan. That’s a key part to planning for uncertainty in retirement.

Taxes for a Surviving Spouse

Now, let’s shift gears to the other biggest wealth-eroding factor in retirement: taxes. We can write article after article about planning for uncertainty in retirement as it relates to taxes, but let’s focus on a few key points.

First, these two biggest wealth-eroding factors are intertwined. Think about it. When you or your spouse dies, the surviving spouse will become a single tax filer and their income will essentially remain the same aside from losing the larger of your two Social Security benefits. That means that the surviving spouse will most likely be moving into a higher tax bracket.

Looking at Current and Future Tax Brackets

Speaking of tax brackets, the 2024 tax brackets were just released on November 9 by the IRS after being adjusted for inflation. There weren’t any sweeping changes from 2023 to 2024, but there are substantial tax code changes set to go into effect in 2026. Unless Congress steps in, the Tax Cuts and Jobs Act is scheduled to sunset on December 31, 2025. Once that happens, tax rates will revert to the higher rates of 2017.

As you’re planning for uncertainty in retirement, it’s hard to say what changes Congress could make to the tax code. We keep coming across people who are unaware that tax rates are scheduled to go up to. It’s critical to take advantage of tax planning opportunities—such as Roth conversions—so that you’re paying as little tax as possible over your lifetime, not just in one year. Having a forward-looking tax plan is pivotal as you’re planning for uncertainty in retirement.

“Taxes are somewhat certain during an uncertain time. If you have 401(k)s or IRAs, that money has never been taxed and it’s going to be taxed. You need to build that forward-looking plan.” – Logan DeGraeve, CFP®, AIF®

When Are You and Your Spouse Going to Claim Social Security?

Remember that you’re playing the long game with income planning in retirement. Retirement is a marathon, not a sprint. How are you going to create enough cash flow to get you to AND through retirement? Social Security is no doubt a crucial income source for many people in retirement. There are a lot of people who want to claim their benefits when first eligible at 62, but that’s not playing the long game. Don’t forget that you need to consider your spouse as well when claiming Social Security.

There are more than 600 iterations of how you and your spouse can claim Social Security. The difference between the best and worst iterations can be a substantial amount of retirement income that you don’t want to miss out on as you’re planning for uncertainty in retirement.

Planning for Inflation

In case you missed it, the Social Security Administration did announce a 3.2% cost-of-living adjustment for 2024. Remember that the purpose of that increase is to keep up with inflation. Inflation is another key item that must be planned for as you’re preparing for and going through retirement.

We’ve seen over the past couple of years that the costs of your needs, wants, and wishes can change due to inflation. While we can’t control inflation, we can plan for it. When we’re building a financial plan, we use a 4% inflation factor for everyday expenses and 6.5% inflation factor for health care costs. That made a lot of people shake their heads when we were using those factors a few years, it has made a lot more sense to people lately. We always use the 40-year running average of inflation as we’re stress testing someone’s financial plan.

“When you get into your 80s, that’s when health care costs can really go up since that’s when you tend to need assistance with health care. If you retire at 60 and don’t inflate that expense, you’re not going to have very good health care options at that point.” – Logan DeGraeve, CFP®, AIF®

What Do We Mean by “Stress Testing?”

When we’re stress testing someone’s financial plan, we want to go through worst-case scenarios that can happen in retirement. Those scenarios can include high inflation, market downturns, a long-term care stay, death of a spouse—the list goes on. This is what planning for uncertainty in retirement is all about.

If you have one of those worst-case scenarios happen to you, can your plan survive it? Or would you need to go back to work? This is why it’s also important to have your assets spread out between short-term, mid-term, long-term buckets as well. Yes, we’re planning the long-game, but if disaster strikes, you need to have three to six months of emergency expenses in a short-term bucket so that your plan’s probability of success won’t plummet.

To determine your plan’s probability of success, you’re going back from a historical perspective and doing a Monte Carlo simulation. It takes you through all these random timeframes and shows you what how often you can do everything you want to do without adjusting your spending.

If you get above 90%, we call that sacrificing. You could spend more, take less risk, or retire sooner. If you’re in the 80%-90% probability of success range, that means that 80%-90% of the time, you’ll never need to adjust your spending. There’s 10%-20% of the time that you may need to adjust your spending for a short period.

“When you know that you have that certainty, that removes a lot of the uncertainty that people have.” – Dean Barber

There’s a Difference Between a Financial Plan and an Investment Plan

There’s an unfortunate misconception that a lot of people think that their investment plan is their financial plan. Your investments are supposed to serve as the engine that makes your financial plan go. A financial plan also needs to consider critical components like taxes and insurance as well as estate planning needs.

How are you going to make sure that your investments keep your plan chugging along throughout retirement? Diversification is key with your investments as well to mitigate risk. Letting it ride when investments are doing well or going into sell mode when they’re not can be easy to do. But it’s pivotal not to let fear or greed take over. Spreading your investments across various asset classes—stocks, bonds, real estate, etc. is critical.

Is your portfolio set up in a way for you to achieve your long-term goals? If it’s not, when is the last time you rebalanced your portfolio? If you haven’t rebalanced your portfolio this year, it’s likely time to do so. Make sure you’re regularly reviewing your asset allocation, asset location, and tax allocation—and understand the differences between them.

Working with a Team of Professionals

There are so many complexities within each financial planning pillar. Our advisors spend countless hours educating themselves and our clients about taxes, estate planning, risk management, and investments. But not even that is enough to adequately help people plan for uncertainty in retirement.

That’s why we have a team of professionals to thoroughly cover each financial planning pillar. Our team consists of CFP® Professionals, CPAs, CFAs, insurance specialists, and estate planning specialists that all work together. We strive every day to build plans that give people clarity and confidence in retirement, so we take planning for uncertainty in retirement very seriously.

“When you have that forward-looking plan that includes a team of professionals, you’re stress testing your plan for all these different types of uncertainty.” – Dean Barber

If you have any questions about where to start with building your personalized financial plan or how to plan for uncertainty in retirement, we want to hear from you. You can start a conversation with us to discuss your personal financial planning needs below.

Schedule a Meeting

Happy Thanksgiving!

We hope that you and your loved ones have a wonderful Thanksgiving. If a conversation does come up about politics, the economy, the status of the markets, or anything else that could relate to uncertainty in retirement, ask them if they have a personalized financial plan. Whether they do or not, we welcome the opportunity to start a conversation with them as well so we can try to help them overcome any uncertainty that they’re concerned about in the retirement planning process.

Planning for Uncertainty in Retirement | Watch Guide

00:00 – Introduction
– Crafting a Financial Plan
02:49 – A Spending Plan
03:43 – What We Can and Can’t Control
07:15 – Measuring Your Resources
09:05 – Why You Need a CPA and a CFP®
12:37 – Dealing with the Uncertainty
– Trivia
18:34 – Handling Medical Expenses
21:41 – What We Learned Today


Past Shows


Investment advisory services offered through Modern Wealth Management, LLC, an SEC Registered Investment Adviser.

The views expressed represent the opinion of Modern Wealth Management an SEC Registered Investment Adviser. Information provided is for illustrative purposes only and does not constitute investment, tax, or legal advice. Modern Wealth Management does not accept any liability for the use of the information discussed. Consult with a qualified financial, legal, or tax professional prior to taking any action.