Prussian Field Marshal Helmuth von Moltke in 1871 warned, “No plan of operations extends with any certainty beyond the first encounter with the main enemy forces.” World War II General Dwight D. Eisenhower later would repackage Von Moltke’s advice:
Retirement planning should not be as complicated as military strategy. Instead of a tangible enemy though, we may be in conflict with ourselves in holding a series of assumptions:
- How many more years will you work?
- Who may depend upon you for financial support?
- How much is in your emergency fund and how will you sustain it?
- When will you retire?
- How long will your retirement be?
- How will you plan for a retirement budget?
- What will your expenses be?
- What will be your investment returns?
- When will you apply for Social Security?
- How will you supplement your Medicare?
- How will you be prepared for long-term care?
- What happens if you go into cognitive decline?
- What will inflation be?
- What will your taxes be?
- What will be your estate plan?
- When will you die?
All great military leaders have one thing in common. They all rely on staff to give them advice and continuously challenge their assumptions about the enemy, terrain, weather, supplies, morale, causalities, prisoners of war, civilians, conventional and unconventional weapons, etc.
For those of us without a staff, however, who will challenge the assumptions we have made?
The cartoon script, Pogo, offered this observation. “We have met the enemy and he is us.” The quote suggests that people are often their worst enemy and can be their biggest obstacle to success and happiness.
So, when we create our financial plan without the benefit of a staff or others there is no one challenging our assumptions. No one is monitoring new information that can impact the plan. This can result in what decision-making scholars call the endowment effect. Richard Thaler coined this term to ascribe the phenomenon of where we value our ownership of something so much, it is out of whack with reality. We reject accepting any new information that could challenge the status quo.
Another set of eyes can add value to your retirement plan by challenging your assumptions about your retirement. Robert Laura in his book, Naked Retirement, offers three questions for those approaching the end of their careers:
- Whose rules (or script) are you following?
- Why are you following them?
- What would happen if you changed—and went off script?
Retired Marine Corps General Anthony Zinni would routinely ask his staff as events unfolded in planning scenarios or on the battlefield, “And then what?”
The best preparation for uncertainty is not taking comfort in a perfect plan. It is crafting a plan knowing it must also anticipate events through flexibility.
How has your retirement plan been stress-tested? Another way to approach assumptions in your financial plan is to subject it to a stress test. Stress tests assess how viable something is with regard to various scenarios. Kiplinger’s Tim Fries offers advice on how to do so in Exactly Do You Stress-Test Your Financial Plan?
Finally, if you want to get an opinion on your financial plan, make an appointment with a financial planner or two and share it with them. They have years of experience in designing and updating plans. You may get validation or suggestions and the first visit should not cost you anything.