Find a Sherpa to execute tough financial terrain

Not too long ago, I was on a walk with my dogs. I should note that a couple of years ago, I broke my ankle. Since then, it, both hips, and my left knee haven’t let up, so walking can be a challenge. Walking on rough terrain can be an ordeal.

Anyway, I was walking my dogs and we came to a place where there was an incline. I had allowed my little Bichon Friese to be off-leash, and she saw something up the hill and went after it. Next went the Golden Doodle, and without thinking, I went up the hill after them. Quite quickly and efficiently I might add, feeling proud of myself at my grand athletic feat.

Anyway, I collected the dogs, turned around and then was confronted with my situation. The climb up had been a breeze, but the climb down was going to be anything but. This brought back to me some other experiences I have been having lately. Stairs for example. Going up is usually not a problem. Going down, again, is often an ordeal. Then I started thinking about other things. I have always heard, and had no reason not to believe, that the way down a mountain is much more difficult than the way up. Dangerous as well. As I understand it, there are far more serious climbing accidents on the way down. And that’s why a Sherpa is so important. Anyway, in confronting this downward climb, I realized I was stuck. Where is your Sherpa when you need one?

This is true in retirement income planning as well. Think about retirement income as two sides of a mountain. The first, or upward side of the mountain is your saving phase. For however many years you save, you are climbing the mountain. Is it a walk in the park? No, but most climbers who get that far can handle it. It’s a challenge, but doable. First you know, relatively, how long you will have to save. You have some control over how much to save. You can get a pretty good idea of returns, that over time, should perform as expected. Obviously, this isn’t always the case, but it is often true. You can weather downturns as you are working and have income. That means if the market crashes, you can generally just wait it out and rebuild over time. Worst case, you can delay retirement in many cases.

The risks during the savings phase are known. They include market and interest rate risk, time and inflation. They can also include tax risk. The most prevalent risk during savings, however, is ignorance and false beliefs, often supported by a financial industry whose sole focus is preserving its $14 trillion golden egg. However, anyone with the will and discipline to save will usually be able to do it, and over time, will accumulate a significant amount of money for retirement. That brings up the issue of fees, which can be damaging on the way up, and devastating coming down.

The way down the mountain – the spending phase – is much more treacherous. All the risks associated with savings – market risk, interest rate risk, time in the market and poor judgment – are all present on the way down. But so are a lot of other risks we either tend not to encounter while saving, or, if the risks carry over, they can be much more acute.

One example is when, in retirement, you lose the salary that had kept you going even when the markets drew down during your accumulation period. Except for those who have enough permanent income such as pensions or annuities that guarantee an income stream, not having outside income changes everything. When you don’t have an income stream you can count on, market drawdowns aren’t just unpleasant and inconvenient, as they can represent an existential threat.

Something called sequence of returns gets introduced to the mix. This is the sequences in which markets go up and down. When saving over the long haul, this isn’t as important. Average returns over time actually mean something; in withdrawal, not so much. In fact, there is a fairly well-known rule of thumb that if you suffer a significant drawdown within the five years just before or after retirement, chances of running out of money go way, way up. From this truth comes the 4 percent rule, now the 2.8 percent rule, which limits the amount of savings one can spend each year with a reasonable chance of not running out of money.

In addition to sequence of return risk, we have inflation risk. With just our historical rate of around 3 percent, you lose 25 percent of your buying power in the first 10 years. After 20 years, you lose 44 percent, and you lose half your buying power by the time year 23 is finished.

Then there is health care. According to the finance software firm, Healthview Services, Medicare premium costs alone will be around $250,000 for a healthy 65-year-old couple. Add long-term care, deductibles, copays, etc., to that, and you could envision a total cost of several hundred thousand more. Enough to wipe out your retirement, in fact.

Taxes are yet another risk that are exacerbated by retirement, especially in this day of qualified retirement plans where we have spent our whole savings lifetime postponing all the taxes on all our savings into retirement where they eat away up to half our savings and income. This ensures we will pay the maximum amount of taxes possible during retirement, often bumping taxes on Social Security and Medicare premiums.

The most treacherous added risk in retirement is longevity. The reason it’s so treacherous is it is a complete unknown, and multiplies all the other risks. Inflation, fees, taxes, sequence of returns, health care – all are made that much worse by longevity.

So, as you are determining what you should do to prepare for retirement, perhaps you might find a Sherpa. Someone who knows the downside of the mountain as well as the upside. Your typical financial professional can get you up the mountain. But coming down requires a specific set of skills.

Stephen Kelley is a recognized leader in retirement income planning. Located in Nashua, he services Greater Boston and the New England areas. He is author of five books, including “Tell Me When You’re Going to Die,” which deals with the problem unknown lifespans create for retirement planning. It and his other books are available on He can be heard every weekend on the “Free to Retire” radio show on WCAP and WFEA, and he conducts planning workshops at his New England Adult Learning Center, located in Nashua. Initial consultations are always free. You can reach Steve at 603-881-8811 or at