Many of my colleagues in the Parks and Recreation profession enjoy being outdoors (stands to reason, no?), and a great number of them are avid hikers, rock climbers, and a few dare to climb mountains- literally!
Whether mountain climbing, rock climbing, whitewater rafting, para-sailing, or any number of other risky-but-exhilarating adventures, folks participate for the challenge, the thrill, the unknown of whether they can actually ascend the peak, shoot the rapids, or fly like a bird without crash landing.
And mountain climbers will often say that the trip down the mountain is just as challenging, if not more so, than the journey up.
What In The World Does That Have To Do With Retirement Planning?
Mountain climbers spend significant time in preparation for the climb. They study the mountain, prepare their gear, work out communications plans with guides, have emergency contact information prepared, and a myriad of other details. They study weather patterns and even success (and failure) stories from previous climbers.
A large part of the story that is often overlooked or unknown by the general public is the amount of preparation and study that goes into getting down the mountain. Many climbers of Mt. Everest have noted that the descent was as difficult, if not more so, than the ascent. Just as much study and focus is in place to get down safely as to get up safely.
Just. Like. Retirement. Planning!
A Retirement Plan is actually two phases incorporated into one: The Accumulation Phase, which is what someone works their entire life to achieve. It includes salary, savings, investments, 401Ks and all other income streams. Almost all of us, either formally or informally, have some kind of accumulation plan in mind, as in “I’m going to save as much as I can, and maximize my 401K at work, and hold off taking Social Security, with the goal of retiring at 67 and having enough to live on from then on.” Obviously, there are many, many variations of this theme but the end goal is similar for most of us. Saving as much as possible for when we retire.
And that, ladies and gentlemen, is analogous to the climb up the mountain. All the prep work, all the planning, in order to reach the peak (or retirement goal).
But, as we know, that’s only half the story. One still has to get back down from Mt. Mitchell. Or Denali. Or Mt. Everest. Or the Matterhorn.
And…….one still has to determine the almost endless number of ways to withdraw and spend the money it took a lifetime to save.
For Many, Spending It is More Difficult Than Saving It!
[I know there are shop-a-holics out there that can’t comprehend this; please play along anyway and empathize with the rest of us.]
An experienced climber knows that preparing for the descent and doing just as much homework for the down portion as for the up portion can possibly mean the difference between life and death. Retirement Planning isn’t quite that severe in scope. But there are similarities:
- The majority of people focus on the observable goal: the summit for a climber, and retirement date for the nine-to-fiver.
- Most people don’t know that for a climber, getting down the mountain is half of the endeavor; and most people don’t know that the distribution phase of a Retirement Plan is just as important as the accumulation phase.
- Overlooking or giving short shrift to how he or she is going to get down the mountain can be disastrous for a climber. Overlooking or giving short shrift to how, in what order, and in what amounts you should draw down your retirement funds can also be disastrous.
- Running out of food, water, oxygen, or any other necessary supplies before the descent has been completed can result having to make some serious decisions, none of them with good outcomes. Running out of money before running out of life can also result in having to make serious decisions, none of them with good outcomes.
Challenges of the Distribution Phase
All of these do not pertain to everyone, but some of them pertain to most people.
- People who focus so intently on making money can be too focused on the “making.” Highly successful CEO’s and Wealth Fund Managers can forget that “making the money” isn’t the ultimate end goal. The money is the means to the end, that being the ability to enjoy retirement. But some folks have difficulty letting go of the game and challenge of accumulation.
- Many people assume a Retirement Plan is only the accumulation phase and therefore also assume that because they are financially comfortable, there isn’t any reason to plan further. “I’ll have enough to last the rest of my life, therefore….” And that is as far as they get.
- Many (most) people do not plan for the next Black Swan event. No one could predict what happened on 9/11. Few predicted (and fewer heeded) predictions about the housing market collapsing, leading to the Great Recession of 2007-2010. Practically no one said there was any chance of a global pandemic that would shut the world down for a couple of years while killing millions of people. I don’t have any idea, any more than the reader, what or when the next Black Swan event will be. But I am absolutely certain there will be one. The million-dollar question is: Can your retirement plan handle that, and has it taken that possibility into account?
- How many income streams, AKA sources of revenue, do you have? If you are still in the workforce, income stream #1 is your paycheck. You are contributing to Social Security and (assuming it remains solvent) you will be able to receive payments after retirement. If you have a 401K at work you have that as income in retirement. How many others do you have? The more the better, and I can easily name a dozen possibilities for income streams in retirement.
- Some income streams are taxable: Social Security, your retirement pension if you will have one, a part-time job, etc. are all taxable. Traditional 401Ks and IRAs are also taxable when you withdraw money from them. If you have one (or both), you know they are tax-deferred, meaning your income is reduced by the amount you contribute while working, with the understanding you will pay taxes at your current tax rate when you withdraw from them in retirement. Roth 401Ks and Roth IRAs are the mirror image (not opposite). You pay tax on any money you contribute to those; i.e. they are just treated as regular income. BUT- they grow tax-free, and you can withdraw money from them tax-free, in retirement. The interesting, solving-the-puzzle part of a retirement plan for someone is understanding some money is taxable and some is tax-free in retirement, and planning what order and what amounts make the most sense. And no set of circumstances is the same for any individual or family.
And, in a very brief nutshell, that is why the distribution phase of a Retirement Plan is like the descent of a mountain climb. You’ve worked hard to reach the peak and meet your goal. But the other half of the journey is just as important.
Feel free to reach out with any questions, and for those attending the #NRPAConference2024 in Atlanta this October, I hope you’ll stop in for an hour and attend “You’re Not In It For The $$-But You Need To Be” on Tuesday the 8th at 2:45. We will have a lively interaction with some group exercises and I think you’ll walk away knowing a little more than you did going in.
