We often tell investors when they are saving for retirement that they are likely to spend 20 years in retirement. This helps drive home how important it is to save early and save often. Some investors take this a step further saving more to fulfill their desire to retire early, giving themselves time to travel or take up the hobbies they didn’t have time for during their careers.
We generally run cash flow projections to age 92, despite the fact the average life expectancy is around 78 in the United States. However, we’ve seen the mindset shift among retirees, in that they believe they may live into their 90s or even 100s, thanks to advancements in medical care. This, of course, brings concerns on whether they will outlive their money.
If you plan solely for a retirement that lasts 15 to 20 years, you may increase your chances that you will outlive your assets. However, if you plan for longevity to age 110, you may short-change your retirement sacrificing your lifestyle for an age that may never come. Your financial plan is a living document that needs to change and adapt to your situation. You should revisit your retirement goals and liquidity needs often, and you should make changes to your allocation or strategy to account for those shifts. Consequently, we believe your financial plan should never be “set and forget.” You don’t create a plan and then come back years later to see if it worked.
In your early retirement years, your financial plan may allocate more funds to your long-term financial goals like the family beach home where all the grandchildren spend their summers, or maybe you want to spend your time on a cruise ship, exploring the ports of the world. But as you age, you’ll likely need to revisit your financial plan as your expenses and priorities will change. Travel often ceases once investors reach their 80s, with health care becoming the No. 1 expense for seniors.
Those who follow the Ten Year Rule are generally planning for these increased expenses years before they happen. We prefer to plan based on your financial need rather than your age; however, age does play a role in what your needs are. The chance you may need a form of long-term care increases as you age; therefore, we encourage investors to look at their living situation. Might they need to modify their home for easier access? Should they consider a senior community, age 55 and up, which has access to home health aides or do they have family close by who can take on the role of caregiver? Each year, we take a close look at clients’ plans, monitoring the shift in their spending and making adjustments as their health needs change.
We also consider goals like gifting for grandchildren and great-grandchildren. Many clients have found themselves helping their children. A Merrill Lynch survey showed 79% of parents have provided some financial support to their adult children. As this trend continues and investors live into their late 90s or 100s, it is likely that investors will want to extend their financial assistance to their grandchildren or great-grandchildren.
Living to 100 is an amazing feat, but it shouldn’t be terrifying from a financial standpoint. It is important to review and monitor your plan, adjusting as needed. Following the Ten Year Rule in retirement should also let you allocate your funds to the priorities that your situation requires, whether that means budgeting for a home in retirement community, long-term care in the form of health aides, or keeping liquid assets to help your heirs.
If you have questions regarding your retirement allocations, the experts at Henssler Financial will be glad to help: