Let’s face it, seniors today are healthier, more active and are likely to have longer lives. So what are the financial implications for retirees who will likely live well into their 80s and possibly their 90s?
Consider the following information from the Society of Actuaries:
- A couple at age 65, has a 50% chance that at least one spouse will survive to age 92 and a 25% chance that one spouse will survive to age 97.
- Males age 65 have a 50% chance of living to at least age 85, while females age 65 have a 50% chance of living until at least age 88.
We believe from a financial standpoint, retirees need to make financial planning decisions that reflect the high probability they will live longer. Here are a few recommendations:
Make appropriate investment and asset allocation decisions.
With longer life expectancies, an investor’s time horizon is extended. As such, retirees need to have a portfolio that not only reflects their risk tolerance, but one that will also endure for an extended period of time. We would suggest the following:
- Avoid investing your portfolio too conservatively
- Maintain a “safety net” that consists of low risk investments
- Utilize investments with low internal fees
The important decision of when to begin receiving Social Security retirement benefits can have far-reaching implications. When making this decision, we suggest couples plan together based on their joint life expectancy. It may be important to consider delaying benefits and/or “filing and suspending” in order to increase the total benefit level.
Make tax-efficient distribution decisions during retirement.
When taking portfolio distributions during retirement, it is critical that the tax impact of these withdrawals be considered. Given the changing tax laws and personal circumstances (changes in medical expenses, etc.), the decision of “Which account?” to take money from should be assessed at least annually.
Make the correct decision of when to retire.
Because retiring is a critical decision (and usually irrevocable), it is important to determine if you are financially secure enough to retire. Prior to making the final decision you should carefully consider the following:
- Are my income sources adequate to cover retirement expenses?
- What would be the impact of certain unexpected events (long term care expenses, high inflation, low investment returns, etc.)?
- What can be done to increase the probability of a financially secure retirement?
Through our Retirement Feasibility or Portfolio Sustainability Analysis, we help clients make strategic retirement planning decisions that can lead to a more secure retirement. If you have any questions, or would like to discuss financial planning strategies that can help you make sound retirement planning decisions, please feel free to contact our office today.