Why Flexibility Is the Missing Ingredient in Most Retirement Plans

Retirement planning is often built around the pursuit of certainty. Forecasted income levels, withdrawal rates and assumed investment returns are used to construct plans intended to deliver a stable standard of living over time. While this approach provides clarity at the outset, it can mask a fundamental weakness: most retirement plans are highly sensitive to changes in markets and spending behaviour.

Retirements frequently last 30 years or more. Over that period, market shocks are inevitable and personal circumstances rarely remain static. Plans that rely on fixed assumptions can fail not because the modelling was incorrect, but because they lack the flexibility to respond when conditions change ^[1]. As Keith Sheehan of W1M Wealth and Investment Management observes, “once you’re in that spending phase… you’ve got to make the money last.”

Retirement Spending Is Not Constant

A common simplifying assumption in retirement planning is that expenditure can be treated as a stable, inflation-adjusted figure. In practice, spending varies materially over time. Early retirement is often associated with higher discretionary expenditure, including travel and lifestyle spending ^[2].

Later years tend to see a natural reduction in activity-related costs, with a greater proportion of expenditure becoming essential rather than discretionary. Ignoring this progression can lead to withdrawal strategies that are unnecessarily rigid.

The practical implication is that not all spending needs to be supported in all market conditions. As Keith notes, effective planning depends on “understanding those elements of your expenditure which are essential to keep the lights and those elements which are discretionary.” Without that distinction, spending becomes fixed by default, leaving little room to adapt when markets fall.

The Transition From Accumulation to Decumulation

During working life, financial plans benefit from ongoing income. Market downturns can often be absorbed through continued earnings and future contributions. Retirement removes that flexibility.

Once individuals enter decumulation, withdrawals must be funded entirely from existing assets. This changes the risk profile of the portfolio ^[3]. Decisions that might be recoverable during accumulation can have permanent consequences when capital is being drawn.

Keith draws a clear distinction between the two phases: “When you’re building up your wealth, you can continue to earn… once you’re in that spending phase, you’ve got to make the money last.” The challenge is no longer maximising returns, but managing the order and timing of withdrawals.

Who Flexibility Is Most Relevant For

Flexibility is less relevant for individuals with secure, inflation-linked income that comfortably covers their essential expenditure. Defined benefit pensions and state pension income can provide a stable foundation that reduces reliance on market-based assets.

For those whose retirement income is largely derived from defined contribution pensions or investment portfolios, flexibility becomes significantly more important. In these cases, market performance directly affects both income sustainability and capital longevity. As Keith explains, for this group “what happens in the stock market does impact… the income and the capital that we can draw from the portfolio.”

Where spending cannot be adjusted, market downturns can force withdrawals at precisely the wrong time.

Growth Assets and Withdrawal Risk

Growth assets are often essential for long-term sustainability, particularly where retirement spans multiple decades. However, their use introduces sequencing risk when income is being drawn. The issue is not volatility itself, but the interaction between falling asset values and fixed withdrawals ^[4].

Keith illustrates this with a simple example: “If you had a million pound portfolio, and you were taking £40,000 out… if that portfolio dropped to £500,000, suddenly you’re not taking £40,000 out of a million, you’re taking £40,000 out of £500,000.” At that point, even a subsequent recovery may be insufficient to restore the original capital base.

Rigid income strategies can therefore undermine sustainability despite long-term growth assumptions remaining intact.

Liquidity as a Structural Component

Liquidity is often discussed in terms of opportunity cost. In retirement planning, its primary role is protection. Holding accessible, lower-volatility assets allows income needs to be met without selling growth assets during periods of market stress ^[5].

This does not eliminate risk, but it changes how risk is absorbed. Keith describes liquidity as a form of contingency planning: “Where do we get liquidity or what spending do we cut?” These decisions are most effective when addressed in advance, rather than during periods of market decline.

Liquidity functions as a buffer, not a return driver. Its value lies in preventing forced decisions rather than enhancing performance.

Flexibility and Sustainability

Long-term sustainability is not achieved by maintaining spending regardless of conditions. It is achieved by retaining the ability to respond to adverse scenarios without permanently impairing capital.

Because longevity is uncertain, retirement planning is inherently probabilistic [6]. Keith highlights that running out of money in later life is a challenging risk to face, therefore the objective is not precision, but resilience.

Flexibility allows spending to be moderated, deferred or funded from alternative sources during periods of stress, preserving the capacity for recovery.

A Risk Management Framework

Retirement planning is often presented as an exercise in forecasting. In practice, it is more accurately described as risk management. The most robust plans are those that recognise uncertainty and are structured accordingly.

They do not assume stable markets or predictable spending, but instead incorporate mechanisms that allow for adjustment over time. Flexibility is not an optional feature of retirement income planning. It is a structural requirement.