[#05] The Hidden Cost Your Retirement Plan Doesn’t Measure
Your retirement plan probably won’t send you any warning signals that it’s brittle.
Reckless assumptions can be picked up.
With a careful eye, incompetent advice can also be spotted.
And faltering markets generally pick back up after a while.
Generally, retirement plans don’t fail for these reasons alone. They fail when they are built in a way that underestimates the cost of being wrong.
On paper, most plans look adaptable.
Returns go up and down, and the model adjusts.
Withdrawals can be tweaked. Allocations can be changed.
Everything appears flexible.
Until the first real test arrives – a market drawdown that coincides with a health scare, a job change, or a new family obligation – and the “flexibility” turns out to be theoretical.
Because real lives aren’t lived on spreadsheets.
In long retirements, many financial decisions are not reversible – even if they look that way at the time.
The illusion of flexibility
Optimisation-based planning treats decisions as though they can always be corrected later.
If returns disappoint, spend a little less.
If markets surge, rebalance.
If circumstances change, adjust the plan.
That logic works when time horizons are short and recovery windows are wide.
It breaks down when lives stretch longer, uncertainty compounds, and mistakes have decades to echo forward.
Because some decisions don’t merely affect outcomes – they alter the path itself.
Withdraw too much early, and compounding never quite catches up.
Choose the wrong structure, and flexibility quietly disappears.
Delay adaptation, and options close without announcement.
By the time the damage is visible, the opportunity to reverse it is gone. And what’s left is not a dramatic failure – just fewer options than you expected to have at this stage of life.
What the old model misses
Traditional advice models are built to manage volatility.
They measure drawdowns, standard deviation, diversification, and expected return. They ask how uncomfortable a portfolio might feel along the way.
But they pay far less attention to something more dangerous: decision damage.
Decision damage occurs when:
an early error narrows future choices
a forced response replaces a deliberate one
a temporary shock produces permanent consequences
This isn’t about panic or stupidity. It’s about structure. It’s what happens when decisions made under pressure narrow your future without anyone noticing at the time.
A plan can be “on track” and still fragile – because it assumes that future decisions will always be available, affordable, and emotionally tolerable.
That assumption is rarely tested.
The risk hiding in plain sight
In longer lives, irrevocable decisions remove options.
Or to put it another way, early decisions shape what becomes possible later.
Without fanfare, without a single drama point you can put a finger on.
Two people with identical starting assets and identical average returns can arrive at radically different destinations – simply because good and bad returns arrived in a different order for each of them.
Person A absorbed volatility and options remained open. Person B was forced to lock in constraints. Not because of recklessness – but because timing, sequence, and circumstance happened to collide … and fragility was revealed.
Optimisation-driven planning tends to smooth this reality away. It focuses on end states rather than trajectories, averages rather than sequences, and probability rather than consequence.
What it misses is that not all losses are equal.
Some losses heal. Others scar.
Why this matters more than performance
Here is where you can come unstuck ...
By assuming the central risk is underperformance – earning too little, not quickly enough. But underperformance can often be managed. Irreversibility cannot.
The real risk isn’t earning a lower return. It’s building a plan that turns ordinary uncertainty into running out of money late in life, missing opportunities you really should’ve nailed, or shrinking your lifestyle out of fear.
That’s why so many capable, well-advised people feel a persistent tension they can’t quite name.
The numbers look reasonable. The logic checks out. But something feels brittle. Not broken – just less forgiving than it seemed previously.
What you’re sensing is the danger of what it is the model isn’t measuring.
The blind spot
What most retirement plans fail to surface is not volatility – but fragility.
How close are you to a point where choice gives way to necessity?
How much shock can the plan absorb before lifestyle has become straight-jacketed?
How many “adjustments” remain before the plan can no longer be tweaked?
‘Resilience’ is a word that rarely appears in advice documents, not because it’s unimportant, but because the model was never designed to withstand economic shocks or unexpected lifespans.
This blinkered approach can have one obliviously sailing towards the wrong horizon.
Where this leaves us
This doesn’t mean that a retirement plans should not aim to optimise outcomes.
It’s that optimisation, on its own, underestimates the cost of being wrong.
In a world of longer lives and deeper uncertainty, the primary threat isn’t volatility – it’s path-dependency quietly robbing you of options in later life, especially when things don’t go to plan.
When a planning system treats irreversible decisions as if they were temporary, it creates risk that no amount of diversification can fix.
And once you understand that, the next question becomes unavoidable:
What kind of planning logic reduces regret instead of maximising forecasts?