People are living longer, leaving many with more time than money. Learn why this can be a double-edged sword for the wealthy and how it can impact a long-term financial strategy.
Longer life is on the wish list for many of us—and it’s a wish that’s increasingly becoming a reality. U.S. Census data revealed that older Americans will outnumber minors in our population by the end of the next decade. Some authorities maintain that for those aged 65, a full third of life remains—with all of the opportunities and pitfalls this entails.
The Social Security Administration (SSA) estimates that the average American aged 65 can expect to reach 84 and 86.5 years old—for males and females, respectively—thanks to a higher quality of life and advances in medical care. For the wealthy, these universally beneficial strides complement what tends to be an inherently longer lifespan for their financially exclusive group.
Being financially secure directly relates to both quality and duration of life, due in large part to the great reduction in cost-of-living stress that comes with wealth and the ease of access to medical care, regardless of expense. These benefits do have some price, however—the wealthy must plan to live well and not simply long.
Key wealth management metrics for longevity
Which wealth strategies can ensure a comfortable life throughout our extended years? It helps to start by looking at the inherent financial complexities of increased longevity.
Let’s assume by the SSA figures that we have a wealthy individual choosing to retire at 65. They would then be looking at a retirement of around 20 years and, in some cases, longer than that—the SSA data also mentions that 1 in 3 will live beyond 90.
That’s at least 2 decades in which accumulated wealth will be drawn upon across 4 major areas: day-to-day living expenses, leisure pursuits, financial ventures/charitable giving, and healthcare. Those 2 decades may become 3 or 4 depending on how early a wealthy individual retires.
There are several rules of thumb touted to offer security in retirement, such as the 4 Percent Rule—the well-worn notion that no retirement portfolio with a 4% annual withdrawal is exhausted in less than 33 years—but such rules may fit some lifestyles and not others. And they are often invalidated by life’s tendency to throw financial curveballs.
The Stanford Center on Longevity considers there to be 8 key considerations for a secure retirement, which are:
- Average annual real retirement income expected during retirement
- Increase or decrease in real income expected during retirement (inflation protection)
- Average accessible wealth expected throughout retirement (liquidity)
- The rate that wealth is spent down
- Average bequest expected upon death
- Downside volatility (the estimated magnitude of potential future reductions in income)
- Probability of shortfall relative to a specified minimum threshold of income
- Magnitude of shortfall
No one knows your lifestyle and plans better than you, so with those 8 metrics in mind—and the aid of an experienced wealth advisor—a retirement budget can be crafted. This will better prepare you for the unavoidable expenses (food, utilities, medical care) alongside the voluntary ones (hobbies, travel, a new home, and gifts).
In terms of healthcare alone, the average 65-year-old can expect to spend upwards of $11,000 annually on medical bills. That’s a projected $209,000 for the average male and around $231,000 for a female. It quickly becomes clear: long-term planning coupled with some sound investment choices will make the golden years easier and more secure.
Long-term investment pitfalls to avoid
Certain investments are generally considered unsuitable choices for retirement. Specialized funds over broad-based index funds, for example. Illiquid investments and venture capital/funding start-ups are two other risky options. Of course, risk does pay off, sometimes. And an individual’s wealth profile coupled with full awareness of their risk tolerance ultimately dictates what’s best for them.
One area that every investor should watch carefully is retirement fees, which can slowly but surely drain your wealth over time. This situation worsens based on how young an individual is, not how old. For example, a “mere” 1 percent investment fee imposed on a 25-year-old investor could mean a loss of $590,000 in retirement savings. And even early retirees will feel a huge pinch over decades.
Also, beware of unscrupulous financial advisors—an ever-present predator in the wealth management landscape. Their unsuitable recommendations are too-often trusted to the detriment (or disaster) of their client’s retirement assets. Fiduciary breaches may include a broker-dealer hawking a certain type of mutual fund which benefits their employer rather than their client—and pays them a nice commission, to boot.
The Securities and Exchange Commission offers an excellent resource on how individuals in their senior years can develop some key competencies in vetting people who offer them financial advice. This is the period of our lives where knowing who we can rely on is more important than ever—so seek out tried and tested, independent financial guidance.
Lindberg and Ripple has this track record
As a third-generation investment and insurance advisory firm, we know about standing the test of time. We’re also an independently operated firm, which means that you can count on our advice being designed for your own financial interests, not just ours. Get in touch at the link below for more information on how we can help you plan.
Lindberg & Ripple offer customized wealth management, investment and insurance solutions to wealthy families and successful businesses. We help our clients craft a comprehensive wealth planning model to achieve their financial goals with minimum fuss and maximum savings. To learn more, connect with us.