Navigate the Three Mountains of Retirement with Confidence

The Three Mountains of Retirement: A Plan for Finishing the Journey

For most of our working lives, we're taught to climb. Work hard. Save money. Invest. Build a nest egg. And for many Baby Boomers, that worked. They spent 30 or 40 years steadily building what looks like a pretty good mountain of assets.

But here's the question I think we don't ask often enough: What's your plan for getting back down the mountain?

I like to use the story of George Mallory and Mount Everest to make the point. Mallory was part of the 1924 expedition that was likely the first to reach the summit of Everest. He and Andrew Irvine disappeared on the mountain. Regardless, the story provides a useful picture of retirement planning.

Getting to the top isn't the same as completing the journey.

Sir Edmund Hillary and Tenzing Norgay famously reached the summit in 1953, and, importantly, came back down.

Retirement is much the same. Building a retirement portfolio is the climb. Creating a plan that allows those assets to provide income, cover the costs of aging and accomplish your wishes for your family and charities is the journey down.

In my experience, there are three big mountains retirees need to think about.

1. Outliving Your Money

During our working years, we ask: "How much can I accumulate?"

Once retirement arrives, the question changes: "How do I make what I've accumulated last?"

That's not a small distinction. A retiree may have a substantial portfolio but still face significant risks like market downturns, inflation, taxes, healthcare costs and simply not knowing how long they'll live.

A retirement plan shouldn't stop at the retirement date. It should answer some basic questions:

• How much income do I need?

• Where will that income come from?

• How do I manage withdrawals during market downturns?

• How will taxes affect my income?

• What happens if I live to 95—or 100?

In other words, we need a plan for the descent, not just the climb.

2. The Cost of Aging

The second mountain is one nobody particularly enjoys talking about: the possibility of needing care. There's a statistic often quoted in retirement-planning conversations:

80% of men die married.
80% of women die single.

Women, in particular, often spend much of their lives taking care of other people. They take care of their children, spouses and aging parents.

Then, sometimes, the tables turn. The husband dies, and the woman who spent years caring for everybody else may suddenly be the one who needs care.

Who's going to help? Where will she live? What will it cost? How will it be paid for?

Those aren't questions we want to think about over Sunday dinner. But they're much easier to address when we're healthy and sitting around the kitchen table than when we're sitting in a hospital room trying to make decisions under pressure.

Long-term care and other aging-related expenses can change a retirement plan very quickly.

That's why care planning belongs in the retirement conversation, not as an afterthought, but as part of the original plan.

3. Leaving the Legacy You Intended

Finally, there's the third mountain: legacy. I've heard it said that the average person spends more time planning their next vacation than planning the last third of their life and the legacy they hope to leave.

There's some truth in that. We spend years accumulating assets, but we don't always spend much time deciding exactly how those assets should ultimately be used.

And a surprising amount can disappear through poor investment decisions, unnecessary taxes, medical expenses and costs associated with aging.

Even beneficiary designations deserve a closer look. For example, a family may plan to leave traditional IRA or 401(k) assets to their children while leaving a life insurance benefit to a qualifying charity.

That may seem perfectly reasonable, but in some circumstances, the better strategy can be the reverse.

Traditional retirement assets may create income-tax consequences for individual beneficiaries, while qualifying charities generally can receive retirement assets without paying federal income tax on them. Life insurance proceeds are generally income-tax-free to beneficiaries under current federal law, subject to applicable rules.

The point isn't that there's one right answer for everybody. The point is that these decisions should be coordinated rather than made by habit. Your beneficiary designation is part of your financial plan.

The Three Mountains Are Really One

Here's the part I think is most important. These three issues don't exist independently.

If you don't have a good income strategy, you may spend your assets too quickly.

If you encounter significant healthcare or long-term-care costs, you may spend them even faster.

And if too much is lost to taxes, expenses or poor planning, there may be less left for the people and causes you care about.

Income. Aging care. Legacy. They're all connected. That's why I believe retirement planning needs to go beyond the traditional question of, "How much money do you have?"

A better question is: "What do you want your money to accomplish for the rest of your life and after you're gone?"