Who Wants to Live to Age 100?

No, this isn’t a game show.  But if it WERE a game show, you would be faced with several challenges before you could achieve your goal of living to age 100.  And heck, many of you tell us you absolutely do NOT want to live that long.  But what if you do anyway?  Are you financially prepared?

Let’s talk about those challenges and how you can prepare yourself to battle your way to the Longevity Finish Line.

Challenge #1: Inflation

Surely you have experienced shock over the cost of bread, milk, medicine, fill-in-the-blank.  Over time, prices for goods and services rise, and our dollars don’t go as far as they once did.  There’s a common misconception for investors who are heading into retirement:

“I’m retired now, so my portfolio needs to be shifted down to fixed income to prevent market losses.  After all, I don’t have the ability to earn that money back!”

Sound familiar?  The fact of the matter is, if you are heading into retirement at age 65, or even 70, you potentially have 30 – 35 more years of living to do!  That is a super-long time horizon, and your portfolio must keep up.  If the cost of bread has doubled over the past few decades, you can bet that it will double again in the future.

So, what is the solution here?  To combat the loss of buying power of your dollars (also known as inflation), you must maintain some portion of your portfolio in growth investments.  Only growth investments (such as stocks or stock mutual funds) have the ability to meaningfully outpace inflation consistently over time.

But stocks are risky, right?  Well of course they are: stock market risk is a real risk.  However, keeping your money invested in less risky fixed investments such as CDs carries a different, but equally important risk: the risk of inflation.  Investors tend to overlook this risk because it is an invisible risk.  It’s not like you see a report running along the ticker at the bottom of your news service reporting the rising price of goods and services every day!  (That would be horrible, by the way.)

The secret is to use a solid asset allocation strategy to help mitigate the risks of investing for growth in retirement.  Lucky for you, you “know a guy/gal” who does this for a living!

Challenge #2: Health Care

Speaking of things that inflate, let’s turn our attention to our next challenge in the Longevity Game: health care.  It is likely no surprise that health care makes our list.  You probably have had personal experience already with a loved one needing more and more health care services as they age.

It’s a double-edged sword, really.  Medical breakthroughs have led us to longer possible lifespans.  But that doesn’t mean we are guaranteed a high quality of life while we’re living longer than ever imagined.  More likely is that the extension of our lives will lead to overall greater spending on health and medical categories.

So, how does one prepare for uncertainty about these expenses in retirement?  There are three good strategies.  First, plan to increase the amount you are saving for retirement to account for the unknown of future health care expenses.

Second, make a plan: do you have family or friends you can count on to help with some of your needs as you age?  It’s good to assess what resources you have available to you in order to not be caught off-guard when the need arises.

Third, take VERY good care of yourself.  While it’s true that we routinely see stories of the 109 year-old woman who drank bourbon and smoked every day of her life and still lived long, surely she is the exception and not the rule.  Keep your stress under control, eat well, sleep, and move your body to stay healthy.  And don’t forget your mental health!  Keeping your relationships alive and your brain challenged are also important health factors.

But you’re already retired, you say?  Then the strategies shift more to analysis instead of preparation.  Analyze the resources you have and be sure you work with your planner to confirm that you are spending at a sustainable pace with increasing health care costs factored in.  (Hint: we do this in your retirement projections automatically!  Ask us for details!)

Maintain your relationships with friends and family and consider having honest conversations with your loved ones about what care and assistance you hope to receive from them.  Do some legwork now to establish relationships with care providers who can help you down the road when needed.

And continue to maintain your health.  Just because you crossed the retirement finish line doesn’t give you the green light to eat chips on the couch all day, every day.  Keep your mind and your body busy!

Challenge #3: Your Family

Wait a minute, didn’t I just say we’d need to potentially rely on some help from family (and friends) in the future?  Yup, I sure did.  This one is tricky.  The risk here is a financial one.  As parents, it is natural to want to help your kids when they are struggling financially.  But there is a not-so-fine line between helping them when the chips are down and enabling them to remain dependent on you for support.

Way too often we see retirement (and pre-retirement) clients faced with an unhappy situation: their child is out of work/going through a divorce/in need of help with the grandkids’ schooling/etc.  You get the picture.  You’ve worked hard and saved a nest egg, and now that nest egg is threatened by spend-down for the next generation’s needs versus your own.

The absolute best approach is to plan WAY in advance.  As your children are growing and launching from the nest (to make room for that nest egg, of course!), start establishing ground rules and guidelines that both you and your partner can abide by when it comes to requests for financial support from your kids.  Children of all ages do well with boundaries if those boundaries are lovingly articulated and fairly and consistently enforced.

If you are already retired and you did not set up very good boundaries, now is the time to be creative.  Offer your advice and very limited (and concretely articulated) financial assistance when needed, but be sure to lay the following groundwork:

“Our greatest gift to you is to be able to support ourselves for our entire lives and not have to rely on you (and your siblings) to support us on top of all your other obligations.”

I also wouldn’t be above threats, to be honest.  Threatening to move in with your kids might be just the ticket to get them to look elsewhere for funding!

In all seriousness, we have seen several quite tragic incidents in which kids drained the parental nest egg dry.  One of our highest goals is to help you maintain your financial independence for your entire life, so let us know if you need some coaching for the right words or strategies to help your kids understand and reduce their pressure on you.

Alright, how did you do?  Are you well on your way to finishing strong as you approach the Longevity Finish Line?  If you are a client of SFG, hopefully you scored big!  Let us know what questions and concerns you have about aging gracefully (or not so gracefully, if you prefer a flashier retirement!) without running out of retirement funds.  We’re here to help!

~Dawn Starks

Any opinions are those of Dawn Starks and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (both principal and any earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual fund investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities directly.

CDs are insured by the FDIC and offer a fixed rate of return, whereas the return and principal value of investment securities fluctuate with changes in market conditions.