Pursuing the “Perfect” Financial Plan Could Make Your Plan More Fragile

As I discussed in a recent blog post, many of the most important retirement decisions you’ll make aren't about your accounts and amounts. They're emotional choices that involve personal judgment, weighing trade-offs, and your most deeply held personal values.

However, refocusing your retirement planning on the things that matter as much or more than money might spark a new concern: perfection.

If hitting a number is your main retirement concern, you can always work longer, save and invest more, and keep topping off your accounts. But once you start thinking about your money as a tool that you'll use to support bucket list travel, philanthropy, lifelong learning, and your grandkid's education, the pressure to get every detail right on paper might feel overwhelming, even paralyzing.

These three examples of financial planning "perfection" all start from a place that seems logical and proactive. But they all come with downsides that could sacrifice the flexibility and resilience most seniors need to succeed throughout retirement.

1. When Tax Optimization Goes Too Far 

Roth IRA conversions are one of our favorite tools at Keen Wealth, and a frequent topic on our podcast. Converting funds from a tax-deferred traditional IRA to a tax-free Roth IRA can significantly reduce your lifetime tax burden, provide tax-free growth, and, when the time comes, reduce required minimum distributions (RMDs).

However, if you convert funds into a Roth too aggressively, you could introduce some unintended fragility into your financial plan.

First, remember that the funds you convert from a traditional IRA are counted as income, which could push you into a higher tax bracket for the year of the conversion.

That additional income will also count in the two-year look-back that Medicare uses to determine if you are subject to an Income-Related Monthly Adjustment Amount (IRMAA) surcharge on your Part B and Part D premiums.

Finally, paying the taxes on large Roth conversions will cost you cash. Where is that money going to come from? Draining your cash reserves to pay the IRS this year so that you'll pay less taxes in the future could severely limit your options if you're faced with a sudden health care emergency or large expense, like a home repair. Intention and balance are key.

2. When Investment Efficiency Reduces Emotional Stability

If you ask a piece of financial software or an AI chatbot to build a portfolio that maximizes long-term returns and beats inflation over a three-decade retirement, the algorithm will probably recommend a portfolio heavily weighted in equities. That's because, on paper, staying aggressively invested usually produces the best long-term projections.

And, for decades, driving up those long-term projections has been a major planning goal. In no small part, you've been working, earning, saving, and investing to build up that nest egg as much as possible for retirement.

But in retirement, most seniors need to shift from an “accumulation” mindset to a “spending” mindset. And the early years of retirement often feel vastly different from your accumulation years.

During your working years, you were largely insulated from market volatility. A market drop might have been a little unnerving, but your lifestyle probably didn't change much because your paycheck kept covering your living expenses. And if you stuck to your investing strategy, you probably "bought low" on securities in your brokerage and retirement accounts that grew your wealth once the market recovered.

In retirement, a market downturn directly affects the exact same portfolio -- but now, that portfolio is funding your daily life. If your plan is "perfectly" optimized for long-term growth but leaves you overexposed to market volatility, you might experience a bad sequence of returns early in retirement. The psychological impact of those losses could be just as devastating as the financial losses. You might lose faith in the markets, and in your plan. You might start living more conservatively, even if you don't really need to. And, in extreme cases, you might start to develop anxiety or depression that casts a dark cloud over what should be your Golden Years. Working with an advisory team that brings experience, perspective, and thoughtful strategies can be key to weathering temporary downturns with confidence.

3. When Eliminating Cash Eliminates Flexibility

Financial modelling sometimes places a low priority on maintaining healthy cash reserves. Again, that's because "perfect" planning is often focused on optimizing growth. The interest that cash earns sitting in a savings account typically projects lower than what that money would earn in an investment account. Why let your cash passively "earn" interest when it could be "working" for you in the markets?

Because your retirement isn't just a projection -- it's real life.

And liquid cash has a superpower that money locked up in investment accounts doesn't: flexibility.

Think about these common real-life scenarios:

An adult child unexpectedly loses their job and needs short-term financial support.

Your spouse has an accident and needs long-term care that Medicare doesn't cover.

After a couple years of retirement you decide you want to relocate so that you're closer to friends and family -- especially that new grandbaby!

The stars suddenly align and you have the time and money to take a bucket-list trip with your spouse years ahead of schedule.

Without cash reserves, you might not have the means to cover these expenses without selling investments or making withdrawals from your retirement accounts. The more pressing the need, the less likely you might be to game out the tax ramifications, or the effect on your annual withdrawal strategy, or whether or not you should shift resources out of your estate plan.

Precision vs. Resilience

Now don't get me wrong: Keen Wealth approaches every comprehensive financial plan we work on with the utmost precision. My team manages even the most complex money issues down to the smallest detail.

But we also know that retirement doesn't happen in a vacuum, or on a spreadsheet. That's why maintaining adaptability is just as important to our planning process as helping folks build wealth.

 When you’re faced with ups and downs – in the markets, the news, or in your own life – a Keen Wealth financial plan is designed to help guide informed decisions and adapt to changing circumstances.

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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