According to government statistics, the average 65-year-old American is reasonably expected to live another 19 years. However, that’s just an average. The Social Security administration estimates that about 25% of those 65-year-olds will live past their 90th birthday. We were reminded of these statistics when we recently received the unfortunate notice that a long-time client had passed away. He and his wife were both in their 90s and living independently.
People often guesstimate their own life expectancy based on the age that their parents passed. Genetics obviously has a bearing on longevity. Modern medicine has also become a big factor in how long we can expect to live. Diseases that were considered fatal 50 years ago are treatable or curable today. For many people facing retirement and the end of a paycheck, the thought of someday running out of money is their biggest fear. And there is no question that living longer increases the risk to your financial well-being.
The elderly typically incur costs that the young do not. As we get older, visits to the doctor and the hospital become more frequent. There’s also the onset of dementia or Alzheimer’s that so many suffer from. As our bodies and minds age, we may not be able to continue living independently and may have to move to a long-term care facility.
We should face these issues squarely, especially as we approach retirement. Too many people refuse to face these possibilities and instead hope that things will work out. As the saying goes, “hope is not a plan.”
Here is a three step plan to help you remain financially healthy even if you live to be 100:
- Create a formal retirement plan. Most Financial Planners will prepare a comprehensive retirement plan for you for a modest fee. We recommend that you choose to work with an independent Registered Investment Advisor who is also a Certified Financial Planner™ (CFP®). Registered Investment Advisors are fiduciaries who are legally bound to put your interests ahead of their own and work solely for their clients, not a large Wall Street firm. CFP® practitioners have had to pass a strenuous series of examinations to obtain their credentials and must complete continuing education courses in order to maintain them.
- Save. Save as much of your income as possible, creating a retirement nest egg. Some accounts may be tax-exempt (Roth IRA) or tax-deferred (regular IRA, 401k, etc.), but you should also try to save and invest in taxable accounts once you have reached the annual savings limit in your tax-advantaged accounts.
- Invest wisely. This means diversifying your investments to take advantage of the superior long term returns of stocks as well as the lower risk provided by bonds. While it’s possible to do this on your own, most people don’t have the education, training or discipline to create, monitor and periodically adjust an investment strategy that has the appropriate risk profile to last a lifetime. We suggest finding a fee-only independent Registered Investment Advisor to manage your investments. They will, for a modest fee, create and manage a diversified portfolio of stocks, bonds, mutual funds and/or exchange traded funds designed to meet your objectives.
The idea of saving for a long retirement should not be avoided or feared. With the proper planning and preparation, retirement gives us the opportunity to enjoy the things that we never had time for while we were working, and can indeed be your Golden Years.