In a previous article, I talked about saving for retirement and the need to focus on expenses, especially for those with less savings.

The challenge is that many unknowns exist on both sides of the income/expenses equation.

Even if we have a pretty good idea of our income (although the more we rely on savings, the less predictable it may be) and most of our essential expenses are known, surprises can still throw our budgets out of whack.

We may be able to reasonably estimate our future income, such as Social Security or pensions, but many expenses, such as health care costs or life events, are less predictable.

So, no matter what retirement plan we devise, it should be done as something other than a one-time task. We should revisit and reevaluate it every year and adjust for unexpected changes.

Stuff happens

I once went on a deep-sea fishing trip with my brother-in-law, his son-in-law, my son, and a couple of other guys (a full boat!) to the eastern side of Great Abaco Island in the Bahamas to fish the reefs and deeper off the continental shelf.

The plan was to travel from West Palm Beach on the southeast coast of Florida to the nearest point in the Bahamas for a stop-over for fuel, etc. (a place called West End). It’s about a 60-mile trip across the Gulf Stream. (It was about 100 miles beyond where we were going on Abaco, a long trip in a small boat with only one engine.)

It was my brother-in-law’s boat; he had made the trip before, so the course was already plotted in his boat’s navigation system. He could set it on autopilot, monitor the GPS screen, and enjoy the trip with the rest of us.

We set out early, and the weather was stormy, but we decided (perhaps unwisely) to make the trip anyway. It was dark and rainy, and windy when we left, and we accidentally ran up on a sandbar in the inlet, which caused us to suck a bunch of sand into one of the motors’ water cooling intake systems.

This is not a good thing, by the way; engine parts and sand don’t mix. But stuff happens on fishing trips (especially with boats on the ocean).

Stuff happens in the financial world, too. For example, large, sudden, unexpected drops in the stock market. These occur more often than you might think—there have been four “biggies” since I entered the workplace in the 1970s. And they surely won’t be the last.

Back to the fishing trip story… The wind blew even stronger when we reached the open ocean, and the engine soon failed (surprise, surprise). Fortunately, the boat had two engines—many offshore boats do for just that reason. At that point, perhaps we should have turned back, but we decided to press on West End with one engine and try to deal with the problem there.

Because our situation had changed dramatically, using the auto-pilot was out of the question. My brother-in-law had to manually steer the boat in challenging weather conditions using the navigation tools he had at his disposal. And with only one engine, very rough seas, and a full boat (passengers, gear, luggage, supplies, bait, etc.), that was a big challenge.

We could never get the boat to ”plane,” so it took much longer than planned. Thankfully, we made it to West End but could not repair the engine there, so we finished the trip with just one. Installing a higher-performance propeller on the working engine helped a lot.

(Anyone who has been on an offshore fishing boat will tell you that a situation like this is very challenging. There’s more to the story, but suffice it to say we made it to Great Abaco Island, stayed a few days, caught some fish, and returned home safely (but we weren’t all on the same boat.)

The point of this little story is that we can chart a course, but if “stuff happens,” we have to respond and adapt accordingly. If we don’t take action, we’ll veer off course, perhaps without knowing it, and may not reach our destination.

You don’t want that in the open ocean or your retirement plan.

We need to realize that all of this happens in the context of faith and trust in God. Prov. 16:9 says,

”The heart of man plans his way, but the LORD establishes his steps.” (ESV)

This verse emphasizes the importance of relying on God’s guidance and allowing Him to direct our paths, especially considering the vicissitudes of life.

We often plan and set goals, but ultimately, the Lord determines our steps. This also reminds us that God “determines our steps” by leading us to make wise adjustments to our plans, sometimes difficult ones, as we trust God and are willing to be flexible based on the practical guidance and instruction we receive from Him and through His Word and the wise counsel of others.

Is retirement stewardship a ”game”?

Of course not (although you can play games in retirement), but the income planning aspect of retirement stewardship is like playing one in some ways. It can be thought of as a series of decisions made one at a time (like a “move” on a game board or a click on a computer screen) in response to whatever the computer (or your opponent) does.

When you make a move in retirement planning (such as deciding how much to spend or how much to withdraw from savings in a given year), life—unpredictable as it is—responds, or rather, happens. This back-and-forth continues year after year, and therein lies the challenge.

Even though we experience time continuously, it would be helpful to think of retirement in terms of periodic (annual?) checkpoints. For example, someone retiring at age 65 may live into their 80s or 90s. This means retirement could last 20 or more years, and each year presents the need for a new checkpoint.

At each of these points—a specific point in time— you have a snapshot of where you are financially. You know things like your current savings, income, and expenses. You can also know your life expectancy—as an actuarial average—but looking ahead to future years becomes more uncertain. Only God holds that knowledge. (Notice a recurring theme here?)

For example, a sudden drop in the stock market, an unexpected health crisis, or a significant expense like a new roof on your house could alter your spending plans. These changes mean you should revisit your financial situation yearly to ensure your long-term strategy makes sense.

Think of it like this: if your retirement savings drop significantly by year 10, it doesn’t matter whether you started retirement with $1 million, $500,000, or $200,000—what matters is how much you have now and what you should do next to stay on course.

Regularly revisiting your plan allows you to account for unexpected events and to adjust your spending and investment strategies. For example, you may have more flexibility early in retirement to spend more if your risk tolerance allows. Conversely, if you’re more cautious, you might save more to ensure you have enough in later years.

Making adjustments

This process of adjusting your plans as new information becomes available is essential. It reminds you that your financial decisions from several years ago don’t necessarily determine where you are now. Instead, each new year presents a fresh puzzle, and adjusting your approach accordingly becomes critical.

As you go through retirement, remember that your financial targets—like your income and expenses—are constantly changing. For example:

• Income may increase when you start receiving Social Security or ”turn on” a pension or annuity
• Life expectancy decreases with each passing year
• Spending habits often change as retirees age; you may see a gradual decline in your lifestyle costs
• Investment strategy may change; you will probably become more conservative, shifting to focus more on preserving wealth rather than growing it

Because these targets are moving, it’s essential to avoid locking yourself into rigid assumptions. Instead, keep your plan flexible and adjust it annually to reflect your current reality. No matter what plan you put in place, the best one will be the only one that meets your immediate spending needs, but that can be adjusted if necessary.

But, practically speaking, what are some ways to make these adjustments?

But how?

This is where things get a little more complicated. There are lots of options, each with multiple variables and trade-offs. I have written about the different strategies for generating sustainable income in retirement, and I would encourage you to read those two articles (and focus on the “dynamic strategies”).

The main goal is to maintain some spending flexibility and build that into your income plan. In this case, we’re talking about Social Security plus regular withdrawals from a retirement savings portfolio.

The more flexible you are, the better able you’ll be to spend a little more upfront during the early years of retirement and then ratchet it back if circumstances warrant later on.

The most common approach to creating income from savings is to take a fixed withdrawal each month or year in retirement, adjusted for inflation. For example, you might start with a 4.5% withdrawal rate and then increase it by the rate of inflation (let’s say 3%) to 4.64% the next year, and so on. The main variables are the inflation rate and your savings balance.

This approach produces consistent cash flow, but what about a situation in which you’re withdrawing from a portfolio that is down 10 percent?

For example, 4.64% of a $400K portfolio is $18K per year ($1.5K per month), but if its value falls to $360K, monthly income drops to $1.4K per month, a $100 per month reduction. That may be of little consequence to some, but it could mean trouble paying the bills for others.

Here are some ways to make adjustments when conditions warrant. Which would be the best for you will vary based on your situation.

Option #1—Reduce or eliminate the inflation adjustment after a losing year.

If you use the approach described above, you could skip the inflation adjustment in the year following the one in which your portfolio declined due to market losses. That would mean less income, but not substantially.

Option #2—Make a higher (than inflation) reduction following an annual portfolio decline.

Rather than just taking a “hit” for inflation after a down year, this approach would reduce withdrawals even more by a higher percentage than inflation, perhaps 5 to 10%. You would continue this approach until the portfolio starts making gains; at this point, you’d revert to your original schedule.

Option #3—Take a series of smaller reductions.

Some retirement experts recommend making a series of smaller but permanent cuts during down market cycles rather than large, temporary cuts. Part of the rationale for this approach is that the math of percentages shows that as losses get larger, the return necessary to recover to break even increases at a much faster rate.

For example, a loss of 25% and 33% percent gain to get back to break-even. A 50% loss requires a 100% gain to recover to the original investment value.

As one expert noted,

“Such a strategy may feel counterintuitive to retirees, who, in times of substantial market declines, may actually be inclined to try to cut their spending even more to defend against the risk of depletion. Nonetheless, the fact that markets generally recover within a few years, and that most retirees are still “only” spending around 4% to 5% per year, means small-but-permanent cuts do more to keep retirees on track.”

The challenge with this approach is that these small but permanent cuts must be taken more frequently—every time the market’s returns are negative—as small cuts that are taken less frequently don’t make a big enough impact in the long run.

Option #4—Take a reduction during some of the ”good years.”

This sounds counterintuitive, but if your savings are relatively low at the beginning of retirement, it may make sense to take advantage of the good years and reduce your withdrawals during those times to add investment capital to your savings that can grow for the future. You could do that by keeping your withdrawal amount the same as the previous year instead of the additional amount afforded by the increase in your portfolio’s value.

These options all have a big caveat: they assume that you can make such reductions and still pay your bills. Reduced withdrawals may require a corresponding reduction in spending, which may or may not be possible depending on how flexible you are with your spending, especially discretionary spending.

Option #5—Consider a “safety first” strategy.

One of the easiest ways to do this is to supplement Social Security with a fixed-income annuity. The purpose is to have enough “guaranteed” income to cover your essential living expenses.

That said, there’s a lot to understand and consider before purchasing an annuity, so I would encourage you to read these articles and get professional advice (preferably not from a commissioned salesperson) before buying one.

What To Do If You’re Already In Retirement But Without Enough Income

Should I Include Annuities in my Retirement Plan (Part 1)? (Also, take a look at Parts 2 and 3)

Option #6—Set up a “liability matching” plan structure.

“Liability matching” is a fancy word for a traditional bucket strategy. It means that the assets in a portfolio are designated for a specific spending horizon and purpose: for example, cash for year one, high-quality bonds for years 2 through 5, dividend-paying stocks for years 5 through 10, and growth and income stocks for years 11 and beyond. TIPS ladders are also a very good (and less risky) way to match future liabilities.

Your ability to use this approach is determined by how much you can allocate to each asset “bucket” and whether it will be sufficient to provide the income you need for that pre-determined period.

Option #7—Use a dynamic withdrawal strategy

This includes different ways to manage your withdrawals based on specific investment performance metrics. I detailed this strategy (one that many retirement professionals recommend) in a previous article so that you can check it out here:

Sustainable Retirement Income—Part Two: Variable Withdrawals

Option #8—Invest more aggressively.

A final approach that can be tempting but that I don’t recommend is to “swing for the fences.” Older retirees afraid of running out of resources can be tempted to invest in lower-quality assets to stretch for additional gains or interest income. This can put their portfolio at greater risk, which is precisely what we don’t need.

That said, it’s possible to invest too conservatively, although it’s usually better to preserve assets than to put them at risk, especially when you can’t afford significant losses.

The Bottom Line

Life changes will be a constant reality (Ecc. 3:1-8). That’s why retirement planning should be a dynamic process. You can make wiser financial decisions each year by treating it as an ongoing series of adjustments—much like playing a game where each move depends on the current situation. When something zigs, you zag!