The prospect of living a longer life brings with it the exciting possibility of more time to enjoy experiences, pursue passions, and spend with loved ones. However, it also presents the daunting challenge of financing an extended lifespan. As life expectancy continues to rise, reassessing your financial plans, especially for retirement, is essential to ensure that your savings can endure longer than anticipated. Here’s a comprehensive guide to help you financially prepare for a long and fulfilling life.
Reconsidering Retirement Age
The Social Security Act of 1935 established 65 as the retirement age when the average life expectancy was significantly lower – 60 for men and 64 for women. With life expectancy now extending into the 80s and beyond, retiring at 65 means living on your savings for potentially 20 to 30 years, which may not be sustainable without substantial savings. Today, over half of babies born are expected to reach 100, highlighting the need for change to accommodate longer lives. Instead of rushing into retirement, consider extending your working years if you have the physical and mental capacity to do so. Continuing to work, even part-time or in consulting roles, allows you to keep earning and saving, thereby reducing the financial strain of a prolonged retirement. Additionally, this gradual transition can provide a sense of purpose and keep you engaged.
Adjusting for Inflation
Inflation is a critical factor in financial planning, as the value of money erodes over time. This means you will need more income in the future to maintain your current lifestyle. To account for inflation, conservatively adjust your income needs, considering an average inflation rate of around 3%. For instance, if you currently live on $125,000 a year, you would need approximately $194,746 to maintain your lifestyle in 15 years, and about $300,000 in 30 years.
Developing Goal-Oriented Savings Habits
Increasing your savings rate is crucial in preparing for rising future costs. Traditional advice suggests saving 10% of your income but aiming for 15% to 20% is more advisable, depending on your economic means. Start by creating a budget to track your spending and identify areas where you can cut back. Redirect these funds toward savings or investments to build a robust financial cushion. Utilize technology to help manage and monitor your finances. Building cash reserves for emergencies and investment opportunities is also essential.
Diversifying Investment Strategies
A diversified investment portfolio is vital for long-term financial planning. As you approach and enter retirement, your investment strategy should balance preserving your wealth and generating income. Diversify your investments across various asset classes. This approach helps mitigate risk and offers the potential for growth and income over time. Consider consulting with us to develop a personalized investment strategy that aligns with your risk tolerance and retirement goals. We can help you navigate market volatility and make informed decisions to protect and grow your savings.
Planning for Healthcare Costs
Longer lifespans mean increased healthcare costs, which can significantly impact your financial planning. As you age, healthcare expenses tend to rise, making it essential to factor these costs into your retirement plan. Consider purchasing long-term care insurance or setting up a Health Savings Account (HSA) to cover potential medical expenses. These steps can help mitigate financial strain and ensure you have the necessary funds to address healthcare needs.
Estate Planning and Legacy Considerations
As life expectancy increases, so does the importance of estate planning. Proper estate planning ensures that your assets are distributed according to your wishes and minimizes the tax burden on your heirs. Work with an estate planning attorney to develop a comprehensive plan, which includes drafting a will, setting up trusts, and designating beneficiaries for your assets. Regularly review and update your estate plan to reflect changes in your life circumstances and ensure it remains aligned with your goals.
Embracing a Flexible Retirement Approach
Adopting a flexible retirement approach allows you to adapt to changing circumstances and needs throughout your extended lifespan. This could involve working part-time, taking on consulting roles, or pursuing entrepreneurial ventures to generate additional income and maintain financial security. Staying engaged in the workforce can also contribute to your overall well-being and life satisfaction.
Partnering with a Financial Adviser
Navigating the complexities of financial planning for an extended lifespan can be challenging. Partnering with us can help you uncover blind spots, develop personalized strategies, and create a comprehensive financial plan designed to support your longer life. We can assist in assessing your life expectancy, estimating future expenses, and planning for inflation impacts on your spending power. We can also guide you in balancing guaranteed income sources like Social Security and annuities with higher-risk investments to mitigate longevity risk and ensure financial stability.
Securing Longevity
Preparing for a longer life requires a proactive and comprehensive approach to financial planning. By reconsidering your retirement age, addressing inflation, developing goal-oriented savings habits, diversifying investments, planning for healthcare costs, and seeking our guidance, you can pave the way for a secure, fulfilling, and financially stable future. Embrace the opportunities that come with extended lifespans, and take the necessary steps to ensure your financial well-being during your golden years.
If you have any questions, give us a call, or read “Wealth on Purpose” by Bryan Ballentine.
Have a great weekend!
Sources: Located at the bottom of the article.
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Sources:
5 Ways to Prepare for a Longer Life
If you’re expecting a long life, take time to adjust your financial plan
Financial Planning in an Age of Increasing Longevity
How To Plan For A Longer Retirement
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