How to Make High-Consequence Decisions When There Is No Right Answer
The most critical decisions you'll make about retirement are never just about accounts, amounts, and calculations.
And if you do try to create a "perfect" plan just by optimizing your numbers, you'll probably sacrifice the flexibility most seniors need to succeed in retirement.
So ...
If there are no “perfect” mathematical answers to major life and money decisions ... And over-optimization can backfire ...
How does anyone actually make these important choices?
Unfortunately, many folks don't.
The multiple branching pathways we all face at major life transitions can look so daunting that the choices and implications might paralyze your thinking. Rather than game out those options and, potentially, make the "wrong" choice, too many seniors head into retirement with a back-of-the-napkin retirement plan and hope for the best.
Of course, as we often discuss in our blog posts and podcasts, retirement planning is never as binary as "right" or "wrong." It's about analyzing competing trade-offs and choosing the ones that move you toward your retirement goals.
And to make those choices, you need a framework.
The Three Questions That Clarify Almost Every Retirement Decision
Put away the calculator and spreadsheets.
Turn off cable news and the "finfluencer" videos your retired friends keep sending you.
At Keen Wealth, we've found that talking through three simple questions can help seniors clarify their retirement decision-making:
What are we protecting?
What are we risking?
What regret can we live with?
Here's my thinking around all three:
1. What Are We Protecting?
Every major financial decision you make in retirement is ultimately an act of protection.
For example:
Are you trying to protect the day-to-day lifestyle you enjoyed during your working years?
Are you trying to protect your annual travel budget?
Are you trying to protect your baseline security so you don’t become a burden to your children?
Are you trying to protect your spouse in case you pass away first?
Are you trying to protect your health span as well as your life span?
Are you trying to protect your estate for loved ones or a charity?
All retirees probably have these "protections" in mind. But how you prioritize these and other money choices will be different from how your neighbor does; your rankings might even clash with your spouse's.
Consider the decision of when to claim Social Security.
Maybe you run the numbers and find that, in terms of meeting your monthly spending goals, claiming your benefits at 62 rather than waiting until 70 doesn't make all that much difference. Having a little extra cash each month while you're still young enough to get around might even help you take an extra vacation or two.
But if you ask yourself, "What am I protecting?" you might decide that maintaining your long-term, guaranteed income stream is a better use of your Social Security benefits. That might lead you to delay taking your benefits so that they continue to grow.
By getting clear on what you want to protect, you'll be less likely to overoptimize an item that's lower on your priority list.
2. What Are We Risking?
Want to "protect" your cash reserves? Then you risk lower returns on your investments.
Want to "optimize" your ROI? Then you risk having less cash on hand.
Any choice you make in a financial plan introduces risk. That's the "cost" of choosing what you want to protect.
Just deciding when to retire can feel like the ultimate risk.
If you want to "protect" your ability to enjoy your life and money while you're still young and mobile, you might put early retirement high on your list of priorities. After crunching the numbers, it might look like, on paper, your nest egg is big enough to support that goal. And maybe those numbers are right.
But early retirement does introduce the risk of spending down your nest egg too quickly. Many folks who do their own planning don't account for long-term variables like inflation and rising health care costs as they age. Folks who equate retirement readiness with "hitting a number" might also lack sufficient diversification to withstand a major market decline in the first couple of years of retirement, which can introduce sequence-of-returns risk. And a healthy 60-year-old with nothing troubling in their family history could reasonably expect three or four decades in retirement, which means you might risk outliving your assets.
Those risks might push someone to keep working longer than they need to, because continuing to pad that nest egg feels "safer." But the longer you work, the more time you risk: years of travel, sports, spontaneous weekend getaways with your spouse, grandkids' birthday parties and baseball games, and the wellness to enjoy them.
The goal here is not to eliminate risk. That's impossible. The goal is to head into retirement clear-eyed about what you're willing to risk for more of what matters the most.
3. What Regret Can We Live With?
This is perhaps the most important step in our framework. And the most emotional.
I said at the top that retirement planning isn't about "right" and “wrong." But years from now, in hindsight, you might wish for a few do-overs.
The only way to know for sure when it's the "right" time to take Social Security is if you know your exact date of death. An unexpected diagnosis in your 70s might make you wish you'd taken those benefits sooner and used the money to cross more items off your bucket list.
Was your Roth conversion strategy, paying taxes today rather than risk higher taxes in the future, "right"? Twenty years from now, Congress might pass a law that makes a different strategy more "optimal" in retrospect.
How could you say no to your adult daughter who was struggling to make mortgage payments after she lost her job? But she could have taken a loan or worked part-time to bridge the gap. You might not have those kinds of options in your 90s when you need to pay for long-term care. Will your daughter be able to help you out?
None of us can predict the future, which, again, is why "perfection" is an impossible financial planning goal. Instead, we have to be realistic about the consequences of our decisions: how options narrow, how resources deplete, and how time is the one asset we can never replenish.
Understanding which outcomes would bother you more won't eliminate regret. But it can help you minimize mistakes and lead you to your best options.
Your Decision Partner
When you begin filtering your choices through these three questions, your thinking about retirement should shift from, “What’s mathematically optimal?” to “What actually aligns with my priorities?”
And planning around those priorities is far more complicated than any math equation.
AI can build you a spreadsheet full of projections in seconds. But it can't talk you through how you'll feel on that first Monday without work. It can't help you keep your emotions in check when the markets are volatile, or when a home repair upends your spending plan. And it can't project what kind of impact your legacy will have on future generations.
Keen Wealth's comprehensive planning process could help you feel more confident about how your retirement looks on paper. But if you meet with our team, you'll see how we could also help you clarify your priorities when everything in your life feels equally important and make the most empowering decisions for your retirement.
About Bill
Bill Keen is a financial advisor with over 30 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he focuses on providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to Forbes, U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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