There are two important questions that investors need to answer in regards to their retirement planning:
- How much money do I need to save? AND
- How long should I expect it to last?
Increasingly, investors need to consider even a third important question as they work through their retirement planning:
What if I live to 100?
As medical advancements improve quality of life and offer the potential to extend one’s longevity, there’s the very real possibility that individuals retiring today, next year, or within another few decades are going to enjoy longer, more active lives than generations before them. While this is great news for you and your loved ones, it adds some complexity to the retirement planning equation.
Accordingly, you should plan your retirement with longevity in mind. Read on to learn how.
It’s essential to plan your retirement with longevity in mind. Read on to learn how.It’s essential to plan your retirement with longevity in mind. Read on to learn how.Consider Your Retirement Age
Age is an essential factor to consider as you look toward your retirement plan. Not only should you think of the age you ideally wish your retirement income to hold out until, but you also need to consider the age at which you’ll retire. The individual who plans to retire at age 65 needs to account for many more years of retirement savings than the one who holds off until age 72.
You should also consider what your income will look like in the years as you approach retirement. Do you plan to work full-time at a day job and then launch straight into a full retirement? Or are you anticipating that you’ll have a gradual shift from full-time employment to part-time, and then a post-retirement hobby job that brings in some extra income on the side?
The employment-to-retirement mix looks different for everyone. However, if you plan to remain employed to some degree throughout even a few of your retirement years, you can offset the amount of money you’ll need to rely on from retirement investments during that time. This can help you to extend the life of your retirement savings and may be a longevity strategy to consider.
Hold Off on Claiming Social Security Benefits
Social Security benefits are a part of most investors’ retirement plans, but they aren’t the same for everyone. It’s important to have a good understanding of what your Social Security benefits might look like in order to plot the best course for the remainder of your retirement income needs.
One essential factor in determining the amount of Social Security income that you can rely on during your retirement years is the age at which you plan to start withdrawing your Social Security benefits. The longer you wait, the greater your month-to-month benefit will be.
Ideally, you want to wait until you achieve your Full Retirement Age (FRA) or possibly to the maximum of age 70 in order to take advantage of all that your Social Security investment has to offer. You can consult an FRA table to understand more about maximizing your Social Security benefit.
Evaluate Your Investment Mix
You don’t want to put all of your eggs in one basket when it comes to your retirement planning. A diversified investment portfolio can help to provide confidence as you move forward in your plans.
To plan your diversified retirement strategy, you should consider a variety of investment vehicles and strategies. Often investors will gravitate toward investments that offer certain guarantees or income benefits. While these may be worthy of consideration, it is always important to remember that every investment has advantages and disadvantages and these products may carry additional fees, charges and restrictions. In the world of finance, diversification is important. Bear in mind that there is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Your financial advisor can provide personalized recommendations for diversifying your portfolio according to your income goals and risk acceptance. Additionally, they may have helpful tips for seeking to maximize your investments with the anticipation of longevity in mind.
Stay on Top of Your Expenses
It is never too early to begin preparing for the phase of life where you will either choose not to work, or be unable to maintain employment. This is an inevitable event for almost everyone, but unfortunately many individuals fail to plan. Establishing good spending habits is one of the most basic, but also most significant steps that you can take as you think about retiring. It is common for people to anticipate spending less in retirement, but learning new habits is extremely difficult. By controlling spending during your working years, it will make for a smoother transition to a phase of life where living within your means becomes even more critical.
With this in mind, it’s important to plan for your retirement with realistic figures that represent your desired lifestyle, length of retirement, and set expenses you can’t avoid. You need a retirement budget that accounts for the dollars you will spend year-to-year so that you can build a retirement income that matches your expenses.
There are calculators and general rules of thumb that can help you to estimate an ideal retirement budget for your lifestyle and longevity plans. But when it comes to getting the best idea of what you as an individual will actually need for your future plans, it’s best to work with a financial advisor who can show you how your financial goals align with your retirement needs with longevity in mind.
Work with a Professional to Plot Your Course
Establishing a retirement savings plan isn’t a simple task. If you’re looking at popular financial resources, blogs, and free calculators to help you put the pieces together, you probably have a lot of questions.
You don’t want to tackle the task of retirement savings on your own. There are too many variables – including the longevity question – that complicate the planning process and challenge oft-repeated rules of thumb.
Don’t leave your retirement savings plans to your best interpretation. Instead, call on the aid of a professional financial advisor who can evaluate your specific situation and help you determine a course that makes sense for your desired retirement.
Your financial advisor will work with you to look at lifestyle factors, anticipated retirement needs, and your risk acceptance to give you some practical options for building a portfolio that’ll work to serve your needs once you hit your retirement years. The experienced advisor will even give you some practical pointers for considering retirement with your longevity in mind.