Being pessimistic comes naturally to some people. Others are naturally optimistic. Both pessimism and optimism have their place. We often hear about the power of positive thinking. On the other hand, unchecked optimism can lead to reckless behaviour. Our naturally optimistic or pessimistic nature can affect the way we plan for the future, especially for retirement. Different planning implies different outcomes. If we’re optimistic, we might be willing to take more investment risks. If we’re pessimistic we might gravitate towards the safety of cash.

Most retirement calculators use average assumptions and generate an average plan. So realising that relying on the average is too risky, you might be encouraged to use pessimistic assumptions. For example, we’re often told to plan to make your money last into our 90s, or even to 100. Actually that’s optimism in terms of a long and (hopefully) healthy life; but it translates into pessimism in terms of how much we can afford to spend each year.

The optimistic plan

If you’re optimistic, you’ll probably assume that your investments will grow steadily; and you’ll assume that your retirement years will be comfortable no matter how long you live. Of course, being optimistic is no guarantee of success. The price of over-optimism can be to run out of money during your retirement years. This might be because your investments didn’t perform as you’d hoped. Or it might be that you lived longer than you anticipated. Perhaps inflation caused your spending to spiral out of control. Or maybe you were hit by an large unexpected expense that derailed your finances.

The pessimistic plan

On the other hand, if you’re pessimistic by temperament, you’ll probably worry when markets are not going up. You may have low expectations for your retirement. Struggling to make ends meet will only serve to justify your pessimism in your own mind. Your retirement plan will assume the worst case scenario, and you’ll adapt your lifestyle accordingly. If you receive a windfall, you’ll probably want to squirrel it away just in case; it won’t improve your standard of living.

The realistic and flexible retirement plan

As you’re probably guessing, at EvolveMyRetirement┬« we don’t believe in being either optimistic or pessimistic when it comes to retirement planning. It’s not a question of striking a happy medium between the two extremes. It comes down to recognising that forecasting the future with certainty is impossible. Good things can happen, and so can bad things. Investments don’t go up in a straight line. Market falls don’t automatically spell permanent ruin. Experts always seem to disagree with each other on the economic outlook. You may live to be 100, or the grim reaper may arrive tomorrow.

So your retirement plan needs to embrace uncertainty. It needs to be robust enough to cope with inevitable bad luck along the way. But it should ideally be flexible enough to allow you to take advantage of any good luck that comes along. Achieving this isn’t easy, which is why we created our own intelligent retirement calculator. It optimises your choices taking probabilities into account. And it helps you achieve optimised financial outcomes without taking unnecessary risk.

How Pessimistic Should Your Retirement Plan Be?
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