The OSIFs of Retirement Planning
By Henry K. (Bud) Hebeler
One term I found common both to the construction business and aerospace business was OSIF, or Oh S__t, I Forgot! This refers to the large number of items that were unintentionally left out of the estimate of a bid price. We always knew that there would be some, but we never knew how large they would be. Once the price was submitted, you had to eat any of the OSIFs that came up, because the customer would never reimburse you for these.
Retirement planning is the same way. Once you have made that commitment to retire, you'll find the OSIFs. Here are some that I and my retired friends and neighbors found:
· Dental costs increase and are uninsured.
· Medical costs increase both with inflation and age.
· The need for drugs increases with age, and there're more expensive and most often uninsured.
· Medicare drops services such as blood testing, bathing care assistance, etc.
· There will be major repair costs on your home: roofing, furnace replacement, remodeling, painting, etc.
· You get major assessments from your condo or other association.
· That old automobile won't last until you die. Nor will your dishwasher, washing machine, hot water heater, computer, etc.
· You don't recover from severe market drops and can't risk buying after the drop.
· Rolling money from matured bonds into new bonds does not maintain the same income.
· That once profitable real estate partnership is now a dog.
· The pension will be lower than listed in the benefit report because you take a J&S option.
· A few years of high inflation wipe out the value of a pension, annuity, CDs, bonds, etc.
· Just prospects of high inflation can wipe out the stock market.
· Social security increases lag actual inflation, so there is irrecoverable damage.
· A child gets in major financial trouble and has nowhere else to turn for help.
· An elderly parent desperately needs financial help.
· Relatives die requiring unplanned travel expenses.
· Grandchildren are born requiring unplanned travel expenses.
· Assisted care for you, spouse or parent support was not in the budget.
· Infirmity forces you to hire help for maintenance jobs you once did yourself.
Unfortunately, professional retirement planners are not retired, so they can hardly speak with any authority about this unless they have been supporting retired parents or helping them struggle. They often feel they have exercised their responsibility by waving clients off by telling them they should do fine on 60% of their working budget. Or even worse, they ask them to fill in a retirement budget sheet with an estimate of how much less they'll need for each item in retirement. (This is a major source of OSIFs!) Instead, they should suggest a significant retirement reserve and often recommend that the clients work a little longer before retiring instead of facilitating their early retirement.
It's true that many retirees live on Social Security with a small fixed income supplement. It's also true that their incomes are a fraction of their income during working years. This is not by choice. The fact that they must do this has no bearing on the goals of a person planning for retirement just because a large part of the retired population is in this condition. Until the planners have actually seen the stress from living on such incomes and the need for supplemental help from younger family members, they should be cautious about using gross statistics to imply that pre-retirement and post-retirement lifestyles will be comparable with retirement budgets that are much less than pre-retirement budgets.
This is not to say that low retirement incomes equate to unhappiness. It does, however, mean that before entering retirement, people need a realistic look at the retirement financial future to make sure that the new lower cost lifestyle will fit the image they have for what may be the last third of their life. The alternative where retirees overspend in their initial retirement years is the most disastrous of all, because it reduces the savings which most certainly will be needed for all of those unforeseen OSIFs.