Advantages of Flexible Retirement Plans

Reviewed: October 31, 2014
By FinanceWeb

Predictions that involve things that can change unpredictable ways are not reliable. A flexible retirement plan is not meant to be relied upon as if a prediction of what will be. If assets include stocks, the market could rise or fail; if plans include estimates of inflation, they can be terribly far from the experience. There is considerable value in developing a flexible retirement plan; it offers options for the short term and guidance for the long term

Guidelines and Plans

A Flexible Retirement Plan is in essence a statement of assets and the goals one wishes to reach by using them. Flexible retirement planners offer models and in the end or at the conclusions they speak of probabilities rather than certainties. To gather more certainty, one must run the planner program over and over as time passes and conditions change. The variables in a flexible retirement plan include savings, pension, retirement payments, and social security. They also include assets such as 401(k), I.R.A. accounts, retirement annuities, trusts, and investments. The value of assets such as a portfolio or retirement annuity is based on the performance of stock or bond markets. A flexible retirement plan prepares spending programs that account for poor market performance.

A Dynamic Process

Flexible retirement plans involve dynamic flows of events and assumptions. For example, one may establish an optimum level of spending per year that encompasses foreseeable needs and choices. One can test the spending level by reducing it by 25 percent to see the effect on the number of years the assets will cover. One can simulate periods of inflation and increases in fundamental costs such as housing, transportation, and utilities.

Planning and Improvement

A flexible retirement plan permits persons of any pre-retirement age to make improvements in the categories that show weakness. One can focus on savings or reducing future costs by paying off obligations. One can adjust the retirement dates or phase in retirement in more gradual steps to maintain costs savings from employer’s benefits.

Phased Retirement Options

For many companies and employees, an abrupt separation from the workplace on a retirement date is an unwanted change. For these companies, its seasoned employees possess the technology needed for continued success. These companies can offer flexible retirement arrangements that permit the employee to continue working, receiving health and other benefits, and maintaining a source of income to complement social security or other forms of pension. Maintaining income and benefits can reduce the use of assets and extend the retirement income base by further contributions to social security or private pension plans. Phased retirement is a tool for balancing assets with spending.

Ongoing Assessment

One must use a flexible plan frequently to stay current with changing circumstances. Spending is often a key element, and one can set guidelines for changes such as falling stocks or rising prices. Asset based income sources have a similar requirement, and they must be assessed periodically to account for market conditions. These assessments yield probabilities for effective use of retirement assets. Some variables can exceed the planning framework such as a prolonged illness and uncovered healthcare expenses. Insurance ad other provisions for events such as failing health and assisted living arrangements are essential parts of a well-balanced flexible retirement plan.