How long your money needs to last is one factor that determines how much you need for retirement. If you want to live to be 100, your retirement portfolio has to be able to support you for decades, keeping pace with inflation, market ups and downs, healthcare costs, taxes and frequent withdrawals.
That’s why longevity planning is so important. You need a retirement strategy that provides stable income and protects the health of your portfolio over time, without running out of money too soon.
This guide covers longevity risk, sustainable withdrawal techniques, portfolio allocation, tax-efficient withdrawals, healthcare costs, market downturns, and planning for a surviving spouse.
Why Is Planning to Age 100 Important
If you live to be 100, your retirement savings may need to last 30 or 40 years. It alters your thinking about withdrawals, investments, inflation, health care, and when you start Social Security. Planning for a longer retirement may help you prevent running out of money later in life.
Longevity Risk
You have to keep up with your funds. If you retire at 65 and live to be 100, you have 35 years to fund. Your investment mix and withdrawal plan must work over that entire term.
Sequence of Returns Risk
A weak market shortly after you retire can cause more damage than a slump later on. You are taking money out of your portfolio while your investments are depreciating. A cash cushion and a prudent withdrawal plan might provide your portfolio breathing space in those years.
Inflation
What you spend $5,000 on now may not buy you the same things 20 years from now. Your retirement plan must account for increasing costs, or your ability to purchase may gradually disappear.
Healthcare expenses
Healthcare might be a significantly higher cost as you become older. Medicare premiums, deductibles, medicines and long-term care can all add to your expenditures. It’s worth factoring these fees into your plan, rather than leaving them as an afterthought.
Timing for Social Security
The age at which you decide to claim Social Security benefits might significantly affect the lifetime benefit amount. Your health, life expectancy, taxes, household income, and survivor benefits should factor into your selection.
Changing needs for expenditure
It is likely you will not spend your money the same manner at 70 as you will at 90. In the early years of retirement, there can be more travel, eating out and hobbies. Later, healthcare or help with everyday requirements may be significant expenses.
Planning to live to 100 provides you with an opportunity to plan these changes before they become financial difficulties. It helps you create a retirement plan that can support you in the long run.
How to Make Your Retirement Money Last
A portfolio could look good at retirement and still be insufficient thereafter. The problem is usually not how much you saved, but how you take the money out. A $2 million portfolio requires a different withdrawal strategy at age 65 than it does at age 85.
Create a retirement income floor
Whenever you can, use Social Security, pensions, and other steady income to meet key needs. This means you need your portfolio to fund less each year.
Tip: Before you figure out how much guaranteed income you'll need, separate your critical costs from your discretionary spending.
Create a Sustainable Withdrawal Plan
Your withdrawal rate should depend on portfolio size, inflation, taxes, asset allocation, and life expectancy. As your portfolio and spending needs change, revisit it.
Tip: Don’t count on one projection; test your withdrawal rate against multiple market returns and inflation levels.
Keep some allocation for long-term growth
Retirement portfolios still require growth to fund a lengthy time horizon. Have enough exposure to equities to sustain buying power, but not so much risk that you can’t stomach the losses.
Tip: Instead of basing the amount of your equity allocation solely on your age, establish an appropriate allocation based on your future income requirements and your risk tolerance.
Diversify withdrawals among account types
Plan withdrawals from taxable accounts, traditional IRAs, Roth IRAs, and other retirement assets. Thoughtful withdrawal planning can help you manage taxable income and protect tax-advantaged assets.
Tip: Think about your likely tax bracket when choosing which account to draw from each year.
Health Care and Long-Term Care Accounting
Include Medicare premiums, out-of-pocket medical expenses, and long-term care in your retirement cash flow model. A late-life care expense can dramatically impact a portfolio lifespan.
Tip: Instead of one medical-cost calculation for your entire retirement, develop a separate healthcare estimate for your later years.
Have a Plan for a Downturn Before You Need One
Pre-determine the assets you will use in a protracted market downturn. A rebalancing approach, cash reserves, and high-quality fixed income can decrease the need to sell equities after a large loss.
Tip: Determine how many months or years of projected expenses your liquid reserves should cover.
Surviving Spouse Plan
Model the financial consequences of the death of the first spouse. When a spouse dies, Social Security income, pension benefits, taxes, insurance and household expenses can all alter.
Tip: Run a survivor-income forecast to see if you might fall short before you retire.
The goal is to have a retirement income system that can sustain today’s lifestyle but also hold onto enough capital to support the latter decades of retirement.
Common Longevity Planning Mistakes
Even little planning mistakes can cause complications during the 30 years of retirement. These are some of the aspects that require a lot of work.
Underestimating the Duration of Retirement
Planning for average life expectancy, means too little money for the latter years. The longer the planned horizon, the more unexpected longevity there can be.
One Rate of Withdrawal Per Year
Your spending demands and portfolio worth may vary from year to year. Portfolio review considerations as you start withdrawals
Taking on Too Much Risk in Your Portfolio Early in Retirement
A large equity allocation can result in substantial losses when withdrawals begin. Your asset allocation should match your risk capacity and income needs.
Taking Withdrawals Without Tax Considerations
The account from which you withdraw can impact your taxable income and future tax liability. Make arrangements for traditional IRA withdrawals, Roth assets, capital gains, and required minimum distributions.
Managing Healthcare as a Fixed Cost
Your health care bills could rise as you age. strategy for premiums, medical bills and even long-term care in your retirement cash-flow strategy.
No Late-Life Care Plan Left Behind
Part of your retirement plan should be who will pay for care if you require help with daily chores. Consider long-term care insurance, protected assets, and family or estate matters before they are needed.
How BNG Wealth Advisors Helps With Longevity Planning
Retirement planning for a 100-year retirement requires the right retirement accounts, income sources, and withdrawal strategies.
BNG Wealth Advisors help customers create retirement plans based on their goals, financial status, and risk tolerance. Strategies may include IRA and Roth IRA planning, rollovers, SEP IRAs, Solo 401(k)s, profit-sharing plans, Defined Benefit plans and annuities with lifetime income.
Call BNG Wealth Advisors today to develop a retirement strategy geared to support you for decades to come.
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