Why I'm Planning for the Worst in Retirement

Northwestern Mutual recently announced that Americans' "magic number" to retire comfortably is now $1.46 million. However, according to the Federal Reserve Survey of Consumer Finances (SCF), very few Americans reach that number.

If you don't expect to hit $1.46 million, don't give up on your retirement planning just yet. How much any of us needs hinges primarily on the life we hope to lead in retirement. Someone who wants to travel the globe several times during retirement will need more than a person who wants to hang out with the grandkids and fish. Someone living in a high-cost-of-living area will require more cash than someone living in a lower-cost area.

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While I've never longed to live the high life, I want to be comfortable in old age. And for me, preparation includes planning for the worst.

Dips in the market

The other day, I was listening to Buffalo Springfield's "For What It's Worth" on repeat. What struck me about the 60-year-old anthem is the fact that it's as applicable today as it was in 1966. That's the thing. The longer I'm on this planet, the more I realize that some things never change.

Wars, regime changes, and technological advances ebb and flow -- but they all affect the economy. Sure, it may be a different war or a different set of technological advances, but as long as the Earth keeps spinning, things are going to happen that affect the stock market.

While I've spent years putting money into our 401(k)s, I don't want to withdraw a penny more than I'm forced to through required minimum distributions (RMDs) at age 75. That's because withdrawing money from a retirement account when the market is down means selling more of our assets to net the amount I need. Once I've sold those assets, there's no chance of watching them grow as the market recovers.

To avoid the necessity of having to make withdrawals at the "wrong time," I'm building a cash account that I can draw from instead. While I wish I'd started building this account earlier, I know I have to do it if I want to preserve the principal in our accounts.

Medical expenses

Nothing scares me more about post-retirement finances than the thought of losing all we've worked for to medical expenses. As residents of the only developed nation without a nationwide, guaranteed health insurance system, we know how easy it would be for our retirement funds to be sucked out of our accounts if one of us becomes seriously ill.

My husband and I can do everything within our power to stay healthy, but we can't control all possibilities. To manage healthcare expenses in retirement, I'm doing two things. First, I put money into a separate savings account each month, dedicated solely to paying unexpected healthcare costs once he retires. And each month, as I pay our mortgage, I think of our house as another emergency fund we can tap if we need to cover a huge medical bill. If I had access to a health savings account (HSA), you can bet I'd be pouring money into it, too.

I get that some people may see planning for the worst as pessimism. However, I see it as a potential way to make retirement savings last throughout our lifetimes.

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