When planning for retirement, asking ‘what if’ questions can be instructive

Asked to name the two most important words in managing your financial life, you might intuitively respond with save more, spend less, buy low, sell high, invest well, retire later, debt free or some other logical response.

However, it may be that a more uncommon question to ask yourself provides the most important two words: what if?

Not enough people think proactively about the many opportunities and challenges that might appear in their future. Addressing these unknowns with a financial plan that covers relevant “what if?” ideas can help people be more confident with their money and life choices.

The arc of life is not smooth. Many factors cause us to take turns, shift direction, back up and accelerate, resulting in a winding path through life. The crossover between life and finances can present a tangled web of accounts and policies, income and expenses, job changes, family changes, knowns and unknowns.

To help untangle this web and manage these many possible paths, it’s important to take the time to repeatedly ask, “what if?” It’s a powerful question to ask yourself while you have some ability to shape your future. It gives you permission to think creatively, or aspirationally. Some “what if” questions will be about potential negative events or circumstances and managing risks. Those topics are important to identify and understand. But what ifs should also be about developing an understanding of how your money could be used to expand possibilities or introduce new life experiences.

The “what if” exercise can help you prepare, identify opportunities, evaluate risks and understand the impact of your decisions today on the probability of future outcomes.

Because you cannot fully predict where your life, health and money will go, you must prepare for a range of potential outcomes. You should also be prepared for new “what ifs” to evolve at different stages of life.

You and your peers might have similar questions to answer, but there is no one-size-fits-all template or checklist of questions that applies uniformly to everyone. Some questions have relatively simple, black-and-white answers. Others are nuanced, personal to your preferences and perhaps layered, unveiling more questions before clear answers.

To be useful, the “what if” questions should come from the framework of a financial plan or within the context of personal goals. This keeps them focused and limits the number of iterations you could spin yourself into as you question all sorts of things that aren’t likely or relevant.

If you don’t know what questions to start with, consider yourself normal. Personal finances and goal setting aren’t natural for many people. To get you started, here is a list of common questions that could build your confidence in your financial future.

• What if I enjoy my work enough to retire a year or two later than initially expected?

• What if I’m forced into retirement earlier than planned by job or health circumstances?

• What if I change careers or start my own business?

• What if I live much longer than the actuarial table suggests is likely?

• What if I die prematurely or become sick or disabled and unable to work?

• What if I commit to saving an extra few percent of my income until retirement?

• What if I’m late getting started with saving and investing?

• What if I invest more aggressively in pursuit of potentially higher returns?

• What if I can’t stomach investment volatility and limit my investments to lower-return options?

• What if I don’t understand my investment strategy?

• What if investment markets decline sharply?

• What if I accelerate the payment of my mortgage or other debt?

• What if Social Security’s future is not assured and my retirement income is less than I expect?

• What if I inherit money?

• What if taxes go up?

• What if I get married, divorced or have kids?

• What if I need expensive long-term nursing home or memory care?

Many of these questions are in your control to answer, some absolutely and others with likelihoods, but not certainty. The “what if” exercise is not meant to induce anxiety through realization that there are many potential events or circumstances that you should be concerned with. The point is to identify those that you have the most control over and come up with strategies to minimize potentially negative outcomes of the ones you can’t control.

For some, there might be questions that are too early to be answered. Others might need professional analysis and recommendations. Getting started will help you prepare for the adventures and misadventures that can cause life to zig and zag. Over time you might also find a need to reset your “what if” ideas to continue to navigate through a balance of financial security and a life well lived.