This Isn't (or, at Least, Shouldn't Be) Your Father's Retirement Plan
Advice that worked in past decades may no longer serve today's retirees. Here's a look at what has changed over the years that you'll need to account for today.
- (opens in new tab)
- (opens in new tab)
- (opens in new tab)
- Newsletter sign up Newsletter
It isn’t a bad idea to talk to your parents or grandparents about retirement and what worked for them. You probably can learn something from their successes — and their mistakes.
But if you’re thinking about following the exact retirement routine they used — with the same portfolio mix, income-distribution plan and claiming strategy for Social Security — you may want to reconsider.
I often warn my clients that getting advice from someone who’s been retired for decades is like asking a friend who ate at a restaurant years ago to recommend what you should have for dinner there tonight. The chef and menu may have changed many times, and there may be other delicious dishes to try. You’d be better off consulting your server — someone who has inside information about what’s best now and who will benefit along with you if the recommendation is a good one.
Subscribe to Kiplinger’s Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In the same way, the world of financial and retirement planning is always evolving, and the tactics that worked 10, 20 or 30 years ago may not give you the best results today. A financial professional who has both experience and cutting-edge knowledge can guide you through those changes and help you reach your goals.
Here are eight things you’ll have to pay attention to as you move to and through retirement:
1. Life expectancy.
The average life expectancy for those reaching age 65 has increased nearly seven years (to 84.3 for men and 86.6 for women (opens in new tab)) since the Social Security program began paying monthly benefits in 1940. And about one out of every three 65-year-olds today will live past age 90 (opens in new tab). Your various income streams might have to last a lot longer than your grandfather’s did. And he likely had a pension to count on; many of today’s retirees do not.
2. Health care.
Just because we’re living longer doesn’t mean we’re living healthier. According to the Pew Research Center, 75% of U.S. adults 65 and older report living with one or more chronic medical conditions (opens in new tab). The latest retiree health care cost survey from Fidelity Benefits Consulting estimated that a 65-year-old couple retiring in 2018 would need an average of $280,000 to cover medical expenses (opens in new tab) through retirement. That’s a 2% increase from the prior year’s estimate — and it doesn’t include long-term care costs. Your plan should include ways to stay active in retirement — and a backup for any costs that Medicare doesn’t cover.
3. Long-term care.
Health care bills are one of the top reasons people give when filing for bankruptcy (opens in new tab), and long-term care needs can add to the overwhelming cost. Genworth’s 2018 Cost of Care Survey (opens in new tab) puts the current median annual cost of care anywhere from $18,720 for adult day health care to $100,375 for a private room in a nursing home, depending on the care required and where you live — and those costs are expected to keep rising. Your adviser can suggest insurance products and other ways to help plan for the worst.
In 2008 and 2009, many pre-retirees learned the hard way what can happen if you put all your money into your home. Those who bought in early 2006 watched their equity disappear within a year or two as the housing market crashed. Some homeowners had time to recover, but in retirement you need a mix of assets that allow you to remain flexible, in case you decide to downsize, renovate or relocate.
5. Market conditions.
Thanks to technology and our global economy, the market changes constantly, and we’ve experienced an incredible amount of volatility in recent history. If the market falls just before or early in your retirement, your entire plan could be at risk. Remember, if you lose 50% of your portfolio, you’ll need to earn 100% to get back to even. In retirement, you’re also withdrawing money and you lose recovery time. It’s important to regularly evaluate market conditions and income-distribution strategies with your financial professional.
6. Social Security.
While pundits and politicians debate the future of Social Security, it’s up to you to determine when you should claim your benefits. While most retirees still file before their full retirement age, many advise delaying payments as long as possible to maximize your benefits (opens in new tab). Your adviser can help you decide what’s right for your plan. (The nice folks at your local Social Security office cannot.) Factors to consider include your family’s medical history and your own, whether you have a pension or other guaranteed sources of income, and if you think you’ll want or need the money while you’re younger and more active.
If, like many modern-day pre-retirees, you’ve been socking all your money away in a tax-deferred investment account, you could be looking at a problem in retirement. Although most people expect to be in a lower tax bracket when they stop working, that isn’t always the case. Even if you’re usually in a lower bracket, if you need extra funds for a vacation or some other major purchase, the money you withdraw could temporarily bump you to a higher rate. You’ll also have required minimum distributions to deal with when you turn 70½. If tax rates go up in the future, the problem will only get worse. You may want to consider diversifying your savings into accounts (such as a Roth IRA) that are taxed in different ways.
Inflation means the market is growing and the economy is doing well. It also puts your purchasing power at risk. It’s crucial to plan for how inflation could affect your 20- to 30-year retirement. The options for growing your money safely keep changing, so you’ll need up-to-date advice. What worked for a different generation may not be the most lucrative or efficient way to save or invest today. Like the menu at the restaurant that changes over time, the strategies and products available to you may not even have been conceived of back when your dad or granddad was retiring. Your qualified financial professional can go over your options, see which ones fit your needs and help design a custom — and current — retirement plan.
Securities offered through GWN SECURITIES Inc. Member FINRA/SIPC. 11440 N Jog Road, Palm Beach Gardens, FL 33418. 561-472-2700. Voyage Retirement Solutions LLC and GWN Securities Inc. are non-affiliated companies. Investing involves risk, including the potential loss of principal. Any references to guaranteed income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Voyage Retirement Solutions LLC is not affiliated with the U.S. government or any governmental agency. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions.
Kim Franke-Folstad contributed to this article.
This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
Daniel Rey is the founder and CEO of Central Florida-based Voyage Retirement Solutions (opens in new tab). Daniel developed the Retirement Navigator, a proprietary planning process designed to help Voyage's clientele achieve their long-term financial goals. He is passionate about helping investors, from public pensions and other employee retirement benefit plans to individual retirement planning.
Delta-8 Restricted in Kentucky: This Week in Cannabis Investing
Kentucky lawmakers passed a bipartisan bill to regulate Delta-8 THC, a psychoactive cannabinoid.
By Morgan Paxhia • Published
Most Common Types of Car Insurance
The following are the most common types of car insurance, which can help you cover expenses in the case of an accident, including medical bills and repairs.
By Erin Bendig • Published
Being Rich vs. Being Wealthy: What’s the Difference?
It’s all about where you put the zeros — having a large bank account isn’t the same as having zero regrets and focusing on what brings you joy.
By Andrew Rosen, CFP®, CEP • Published
I Wish I May, I Wish I Might: Estate Planning’s Gentle Nudge
Contrary to what you might expect, using precatory language such as ‘I wish’ or ‘I hope’ can play an important part in three estate planning objectives.
By Allison L. Lee, Esq. • Published
Donor-Advised Funds: A Tax-Savvy Way to Rebalance Your Portfolio
Long-term investors who embrace charitable giving can easily save on capital gains taxes by donating shares when it’s time to get their portfolio back in balance.
By Adam Nash • Published
Five Investment Strategies to Focus on in 2023
Planning instead of predicting, reducing allocations of illiquid assets and having a diversified portfolio are good ways for investors to play defense this year.
By Don Calcagni, CFP® • Published
Investors Nearing Retirement Show Patience With Markets
Despite last year’s upheaval, many investors are sticking with long-term plans and tightening their budgets instead of moving money out of stocks and bonds.
By Matthew Sommer, Ph.D. CFA® • Published
Long-Term Care Planning vs. Taxes: Finding a Healthy Balance
Many families discover that trying to mitigate the cost of long-term care can conflict with another common retirement concern — reducing taxes for retirees and their heirs.
By John M. Graves, Esq., IAR, Agent • Published
For a Concentrated Stock Position, Ask Your Adviser This
There can be advantages to having a lot of stock in one company, but ‘de-risking’ can help avoid some significant disadvantages.
By Robert Gorman • Published
Trusting Fintech: Four Critical Moves to Protect Yourself
A few relatively easy steps can help you safeguard your money when using bank and budgeting apps and other financial technology.
By Shane W. Cummings, CFP®, AIF® • Published