Establish Specific Goals

You cannot achieve a successful retirement without specifically defining what that success looks like. Putting some goals on the back of a napkin doesn't provide enough concrete information for you to make decisions about how to achieve your goals. How much money do you actually need to enjoy the living standard you want during retirement? Do you want to base that on your current living standard or make some adjustments – up or down – based on where and how you want to live during retirement?

These are just a few of the specifics you need to establish before developing a retirement plan. You're almost guaranteed to fail without knowing exactly where you want to go.

Protect Yourself From Inflation

Among the handful of pre-retirees we've met who established specific goals, none included an accurate assessment of what inflation would do to their living standard, assets, and retirement plan over time. Inflation is a silent killer, and unless you learn how to deal with inflation in retirement, it can kill your chances of success without you ever knowing until it's too late.

You'll never receive a statement from your bank, broker, insurance company, etc., that tells you that you've fallen behind because of inflation. Most bank and brokerage statements give you a false sense of confidence, even if your balances are stable or growing.

Your retirement plan must accurately assess the effect of inflation and provide strategies to ensure that both your living standard and your asset base keep up with inflation.

Plan for a Long Retirement

One of the biggest mistakes pre-retirees make is underestimating how long they will live and, therefore, how long retirement will be. The normal retirement age of 65 is just the beginning of what can be a very long retirement, and your retirement plan has to carry you through, not just up to, retirement.

If you have a plan which only takes you to age 65, you will probably fail.
On average, with advances in medical science and healthier lifestyles, retirement can easily last 20 years; often, it will last longer. However, if you have not developed a retirement plan that addresses all those years, you don't have a complete one.

Anticipate Surprises

That may seem like a contradiction; how can you anticipate something that is unknown? You may not be able to predict the surprise, but you can assume there will be some surprises in retirement.

A successful retirement plan will include a healthy surplus to handle whatever surprises cross your path. You can build in some reasonable assumptions about long-term care costs, increased medical expenses, significant repairs or capital expenditures, etc. Even if you accurately assess your normal living standard and include reasonable inflation assumptions, if you do not anticipate some major surprises, you may still run out of money when you can least afford to do so.

Understand Social Security

Social Security benefits are significant for most retirees, even those in the upper-income levels. Every dollar you receive is one less dollar you have to withdraw from your retirement savings, and that savings has a compounding effect over time.

While most pre-retirees get a Social Security benefits estimate before retirement, very few ask the most important question: Can you count on receiving 100% of the estimated lifetime benefit? The Social Security system is not on a solid financial footing and hasn't been for several decades. The reality is that some people – maybe the majority of retirees – will not receive their full estimated benefit. 

You need to understand what Social Security means to your retirement plan, how it might be changed, and how to take countermeasures to ensure a successful retirement.

Invest for Your Whole Life

A successful retirement plan doesn't just take you to retirement; it must take you through retirement. That means your investment plan - a key component of your retirement plan - needs to match the changes that will likely occur as you approach, enter into, and then live through retirement.

You should also be willing to make strategic adjustments to your investments during the different phases of life, reflecting your goals, different cash flow needs, and any changes in your risk tolerance. You cannot just adopt a set-and-forget investment strategy. You need to invest purposely for the accumulation phase of life and then invest purposely for the draw-down phase of life.