09/29/2011 11:55 am ET Updated Nov 29, 2011

Adjusting Your Savings Plan in Retirement

People often refer to retirement as crossing the goal line, but -- to extend the football analogy -- it's more like getting into the red zone. At that point, you are in a great position for success, but your work isn't over yet. In fact, as in football, you may have to call an audible -- change the play at the last second -- in order to be successful.

Amassing savings for retirement is one challenge. Making those savings last throughout your retirement is another challenge, and in some ways it can be trickier. So, if you've been able to build your retirement nest egg despite a treacherous stock market, crashing real estate and microscopic savings account rates, congratulations -- but don't get ready to rest on your laurels just yet.

3 new challenges you'll face in retirement

To be sure, there are plenty of challenges involved in building your nest egg: raising your savings rates, investing wisely, making appropriate use of tax-deferred vehicles, etc. However, when you reach retirement, you'll face three new financial challenges:

  1. Less opportunity to make up for mistakes. As you save for retirement over the course of 30 or 40 years, there is plenty of time to make up for mistakes. Once you retire, you have fewer options should something go wrong with your plan.

  2. Withdrawals raise the stakes of market risk. Withdrawals amplify volatility, which means that if you
    take money out when an investment
    is down, you decrease your chances of making up for the
    loss. So, the exact same mix of investments is inherently riskier when you
    are taking money out than when you are putting money in.

  3. Open-ended planning. You
    can set your retirement date, so planning up to that point can be timed
    with precision. Once you reach retirement, though, planning
    becomes open-ended, because you don't know how long you will live.

Dealing with the challenges

Here are some ways you can deal with these new challenges in retirement:

  • Check your plan at least yearly. Don't act as if the plan is locked in once you reach retirement. Compare your plan to reality at least once a year.

  • Adjust your assumptions to market conditions. If the stock market outlook is gloomy, or savings account interest rates drop near zero, your assumptions about future returns need to be adjusted to reflect that.

  • Be quick to lower spending when indicated. If unexpected conditions indicate that you should spend less, make the change immediately. The longer you overspend, the more drastic the consequences will be.

  • Don't feel you have to spend it all. If you find you don't need as much money as you'd
    planned, don't feel like you have to spend -- or give away -- the excess. Use
    it to build up a cushion, because there is still plenty of time for the
    unexpected to happen.

In football, the defense often gets tougher in the red zone, making things more difficult for the quarterback. Similarly, you'll find when you reach retirement that you face a new wave of financial challenges. Still, as with a quarterback in the red zone, reaching retirement with a viable savings plan means you have put yourself in position to succeed. Now you have to make the most of that opportunity.

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"Adjusting your savings plan in retirement"