Longevity: An Underestimated Factor in Retirement Planning

Harshita Kalra |
Categories
Retirement Planning

Ahhhhh, retirement! For many, it’s one of life’s most joyful transitions and marks the beginning of a new chapter filled with opportunities for well-deserved relaxation, exploration, and personal growth. 

Are your retirement wishes living up to your retirement reality? 

When saving and planning in pre-retirement, many miscalculate how long they will live in their financial projections. This mistake can significantly impact your bucket list wishes and lead to future financial insecurity. 

Impacts on your retirement lifestyle are amplified since you are no longer accumulating career paychecks but are decumulating assets by receiving “portfolio paychecks”. Because each stage of retirement brings unique financial concerns, it’s important to know how priorities shift based on your activities and physical condition. Here’s an easy way to explain aging stages in retirement:

Go-Go Years:

  • Activities: This phase is characterized by active living, including travel, volunteering, home renovations, or moving/downsizing.
  • Financial Priorities: Ensure a robust savings plan, have liquid assets for easy access, and allocate funds for leisure and home improvement projects. It's essential to maintain a diversified investment portfolio to support an active lifestyle.

Slow-Go Years:

  • Activities: As individuals age, there may be a preference for aging in place with fewer activities due to increased health issues.
  • Financial Priorities: Focus on healthcare savings, including long-term care insurance and health savings accounts (HSAs). Ensure your home is adapted for aging in place, which might include home modifications for accessibility.

No-Go Years:

  • Activities: This phase often involves long-term care (LTC), caregiving needs, possibly moving to assisted living or a nursing home, and spending down accumulated assets.
  • Financial Priorities: Secure funds for long-term care, including Medicaid planning if necessary. Consider annuities or other income streams that provide stability. Ensure your estate planning is up-to-date, including wills, trusts, and power of attorney.

How many more years could you live?
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Ensuring that your retirement years are comfortable and secure requires a blend of financial planning, health care considerations, strategic tax planning, and preparing for future long-term care needs. Here’s what you need to address to ensure you have planned to avoid running out of money in retirement.

Know Your Financial Baseline: Build a Robust Retirement Plan

  1. Assess Your Financial Situation: Start by taking a comprehensive look at your financial health. Consider your savings, investments, pension plans, and expected Social Security benefits. A clear understanding of your financial standing is crucial for making informed decisions.
  2. Diversify Your Investments: To ensure a steady income throughout retirement, consider diversifying your portfolio. Including Income or Fixed Income investments in your investment mix can provide stable returns with lower risk compared to stocks. 
  3. Create a Budget: Establish a realistic budget that reflects your expected income and expenses. Include costs for everyday living, leisure activities, healthcare, and any unforeseen emergencies. Regularly review and adjust your budget as needed to stay on track.
  4. Strategic Tax Planning: Efficient tax planning can significantly enhance your retirement income. Utilize tax-advantaged accounts like IRAs and 401(k)s, and plan your withdrawals to minimize tax liabilities. 

Balancing Risk & Reward: How Far Will You Go?

Investors willing to accept higher risk may be rewarded with higher returns. This concept of “compensation for investors who tolerate extra risk” is also known as a risk premium. 

Higher-risk investments, such as stocks or high-yield bonds, can potentially offer greater returns, which can significantly boost your retirement savings. However, it’s important to balance these investments with safer options to protect your principal.

Living on a Fixed Income: Smart Money Management

Living on a fixed income requires strategic planning and smart financial decisions. Here are a few tips:

  1. Budget Wisely: Create a detailed budget to track your income and expenses. This helps in identifying areas where you can cut costs and free up cash to invest.
  2. Downsize: Consider moving to a smaller home or a location with a lower cost of living. You can invest proceeds from the sale of real estate to boost your savings for later in retirement.
  3. Take Advantage of Discounts: Many retailers and service providers offer senior discounts. Don’t hesitate to ask and take advantage of these savings.

Health & Wellbeing: Prioritize Physical and Mental Health

  1. Maintain a Healthy Lifestyle: Staying active and eating a balanced diet are key to enjoying a long and healthy retirement. Regular exercise, proper nutrition, and preventive healthcare can help you maintain your physical and mental well-being.
  2. Stay Socially Engaged: Social connections are vital for mental health. Engage in community activities, join clubs, or volunteer. These activities can help you stay connected and prevent feelings of isolation. 
  3. Keep Learning: Retirement is a great time to pursue new hobbies or interests. Lifelong learning can keep your mind sharp and provide a sense of purpose.

Long-Term Care: Planning for Future Health Needs

As you age, the likelihood of needing long-term care increases. Preparing for this possibility is an essential part of retirement planning.

  1. Evaluate Long-Term Care Insurance: Long-term care hybrid insurance or annuites can help cover the costs of care services that aren’t covered by traditional health insurance or Medicare. Consider your risk tolerance and financial situation when evaluating these policies.
  2. Understand Medicare and Medicaid: Familiarize yourself with what Medicare and Medicaid cover regarding long-term care. This knowledge will help you plan for any additional insurance or savings needed to cover potential gaps.
  3. Consider Different Care Options: Research various long-term care options, including in-home care, assisted living facilities, and nursing homes. Understanding the costs and services associated with each can help you make informed decisions if the need arises.
  4. Discuss with Family: Have open conversations with your family about your preferences and plans for long-term care. This ensures everyone is aware of your wishes and can help support you in making these decisions.

Emotional & Psychological Preparedness: Embracing What’s Next

  1. Set New Goals: Retirement is an opportunity to set new personal and professional goals. Whether it’s traveling, writing a book, or learning a new skill, having goals can give you a sense of direction and fulfillment.
  2. Adapt to Change: Transitioning to retirement can be challenging. Be patient with yourself as you adjust to new routines and changes in your daily life. Seek support from friends, family, or professional counselors if needed.
  3. Celebrate Milestones: Take time to celebrate your achievements and milestones. Reflecting on your accomplishments and the journey ahead can provide motivation and joy.

With careful planning and a positive mindset, you can remain happily retired no matter how many years you WILL live.

Ready to reconsider your financial plan based on a more realistic projected lifespan? 

Schedule a consultation with Team Treece to help you embrace the abundance of a longer life. 

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Related Resources

Fast Financial 101: Is It Time For A Money Mindset Makeover?

Don’t Let The 4 D’s Derail Your Retirement

From Sacrifice to Stability: How Caregivers Can Safeguard Their Financial Future

Adjusting to Retirement: Handling Depression, Stress, and Anxiety

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All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. A diversified portfolio does not assure a profit or protect against loss in a declining market. The guarantee of the annuity is backed by the claims-paying ability of the issuing insurance company. This blog is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.