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What’s your retirement contingency plan?

Published: Wednesday, Sept. 11, 2013 5:30 a.m. CDT

You probably have thought about what you’d like to do during your retirement years.

But all your plans probably depend, to at least some extent, on your financial situation. What happens if you reach the age at which you wish to retire and you just don’t have the money you thought you’d have?

If this occurs, it’s time for Plan B. What does that look like? Here are a couple of possibilities: 

• Continue working. If you like your job, you may not mind working an extra year or so. You’ll be bringing in more income and contributing more to your 401(k) or other retirement account – and, perhaps almost as importantly, you might be able to avoid tapping into these retirement accounts, thus giving them more time to potentially grow. (However, once you turn 70½, you’ll need to begin taking withdrawals from your 401(k) and a traditional IRA.)

But if you are really not enamored with the idea of working any longer, you might find that even the ability to beef up your retirement plans for another couple of years isn’t much consolation.

• Adjust your retirement lifestyle. It’s pretty simple: If you don’t save as much as you had planned for retirement, you probably can’t do all the things you wanted to do as a retiree. For example, you might not be able to travel as much, or pursue your hobbies to the extent you’d like.

Clearly, you’d like to avoid these retirement contingency plans. To do so, though, you’ll need to take steps well before you retire. The most important move you can make might be to contribute as much as you can possibly afford to your IRA and your 401(k) or other employer-sponsored retirement plan. 

During the past several years before you wish to retire, you might be in a strong position to max out on these plans because, at this stage of your life, your income might be at its highest point, your children might be grown, and you might even have retired your mortgage. If you still have money remaining to invest, you might want to look at other tax-advantaged vehicles that can be used for retirement.

While it’s important to put in as much as possible into your retirement accounts, you need to do more than that. You also must put the money in the right investments within these accounts. Your exact investment mix should be based on your individual risk tolerance and time horizon, but, as a general rule, these investments must provide you with the growth potential you’ll need to accumulate sufficient resources for retirement. 

Of course, as you know, investments move up and down. You can’t prevent this, but you’ll certainly want to reduce the effects of volatility as much as possible when you enter retirement. Consequently, during your final working years, you might need to adjust your retirement accounts by shifting some of your assets (though certainly not all) from growth-oriented vehicles to income-producing ones. 

It’s a good idea to have contingency plans in place for virtually every endeavor in life – and paying for your retirement years is no different. But if you can make the right moves to avoid the contingency plans in the first place, then so much the better. 

• Steve Middaugh is a financial adviser with Edward Jones Investments. He can be reached at, or at his office, 500 Coventry Lane, Suite 160, Crystal Lake, or at 815-356-5401.

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