My wife and I were traveling and entered into a conversation with a young couple who had been hitchhiking. He was excited about the adventure, she was somewhat panicked. While they traveled together, they were each experiencing a far different trip. She was so concerned about what could happen, that she was living her worst fears in advance.

In our work, we do a lot of retirement projections. People always want to understand what is a safe spending level in retirement. Those calculations invariably involve planning for worst-case investment return scenarios. Planning for the worst case automatically means that things will likely turn out better than expected. It also means that most of us will end up not doing things that we want because we are living out the worst case in advance.

There are a number of factors beyond investment returns that impact how much you can spend in retirement — how long you might live, whether you will receive an inheritance, how much help you wish to provide for parents or children, how much of your estate you wish to leave to charity or others. Each of these decisions influences what you can safely spend in retirement. While we all want to run out of life before we run out of money, most of us place too much emphasis on the latter at the expense of the former.

There are many steps that you can take so that you don’t need to fear retirement. For example, reducing your fixed costs by paying off debt or living less expensively means that stock market volatility will have less of an impact on you. If the markets are down, you can delay a purchase but you can’t delay paying the mortgage.

Don’t fall victim to the myth of conservative assumptions. If it is likely that you will receive an inheritance, discount it but don’t exclude it. If spending is likely to change because of health considerations, then planning for constant spending through a long life may be too conservative. If you definitely want to leave money to the kids, consider owning long-term care insurance. Part-time work can also have an impact on lifestyle. I ran into a friend who works as an usher for Twins games. He makes a little extra money and gets his hobby paid for.

There is a big difference between planning for the worst case and preparing for it. Preparing means that you make decisions that create flexibility so in the remote chance that the worst case happens, you can deal with it. Living the worst case in advance isn’t really living.

Spend your life wisely.


Ross Levin is the chief executive and founder of Accredited Investors Wealth Management in Edina