Living Longer Has Completely Changed the Financial Planning Equation

Living Longer Has Completely Changed the Financial Planning Equation

For a long time, retirement planning was built around a relatively simple question:

“Will I have enough money to retire?”

That question still matters. But it isn’t enough anymore.

People are living longer, and that has completely changed the financial planning equation.

If you retire at 60 or 65, you could potentially spend 25, 30 or even 35 years in retirement. That means retirement isn’t necessarily the final chapter of your financial life. It could be a third of your life.

And planning for that kind of longevity requires a different way of thinking.

Retirement Isn’t the Finish Line

One of the biggest mistakes I see in financial planning is treating retirement as the destination.

You work. You save. You invest. You reach a certain number. Then you retire.

But what happens next?

That’s where the real planning begins.

When retirement could last decades, your financial plan needs to account for much more than whether your portfolio can support you for a few years.

You need to think about how much you can comfortably spend, how taxes may change over time, when to claim Social Security, how your investment strategy should evolve, how healthcare costs could affect your plan and what happens if one spouse lives significantly longer than the other.

The question becomes less about “Can I retire?” and more about “How do I make my money work for the rest of my life?”

Longevity Creates a Different Kind of Risk

Living longer is obviously a good thing.

But financially, longevity creates an interesting problem.

The longer you live, the longer your money potentially needs to last.

Someone who retires at 65 and lives to 75 has a very different financial challenge than someone who retires at 65 and lives to 95.

That’s a 20-year difference.

And those additional years aren’t necessarily inexpensive.

You still have housing, food, travel, insurance, taxes and everyday expenses. You may also encounter higher healthcare costs, long-term-care expenses or other financial obligations later in life.

This is why I don’t believe retirement planning should focus exclusively on a portfolio’s value today.

We need to think about the entire timeline.

Your Retirement May Have Several Different Phases

Another reason longevity changes financial planning is that retirement isn’t necessarily one long, identical period.

Your 60s may look completely different from your 70s.

Your 70s may look completely different from your 80s.

Early retirement might involve traveling, buying a vacation home, spending more time with family or pursuing hobbies that you’ve put off for decades.

Later, your spending may naturally change.

You may travel less but spend more on healthcare or assistance. Your priorities may change. Your living situation may change. Your family circumstances may change.

That’s why a good financial plan shouldn’t simply assume that you’ll spend the same amount every year for the next 30 years.

Your life will change.

Your financial plan should be able to change with it.

Taxes Become More Important Over a Longer Retirement

Longevity can also create a tax-planning challenge.

If you’ve accumulated significant money in traditional retirement accounts, you may have spent decades receiving tax benefits while saving.

Eventually, that money may become taxable as it comes out.

A longer retirement means there can be a much longer window to think strategically about taxes.

That could involve evaluating Roth conversions, charitable giving strategies, qualified charitable distributions, required minimum distributions and the timing of different sources of retirement income.

The point isn’t that one particular strategy is right for everyone.

The point is that tax planning shouldn’t stop when you retire.

In many cases, it becomes even more important.

The Portfolio Has to Serve a Purpose

Longevity also changes how we should think about investments.

Your portfolio isn’t simply there to produce a return.

It’s there to support your life.

That means understanding how much you actually need from your investments, when you’ll need it and what risks could disrupt your plan.

A person who needs their portfolio to fund 30 years of retirement may have a very different set of considerations than someone who expects to work part-time for several years or has substantial pension income.

This is where financial planning and investment management need to work together.

The portfolio should be built around the plan—not the other way around.

The Most Important Question May Be: “What Do You Want Your Money to Do?”

Longevity also gives us an opportunity to think bigger.

If you’re fortunate enough to live into your 80s, 90s or beyond, what do you want those years to look like?

Do you want to travel?

Spend more time with your children and grandchildren?

Start a business?

Work because you enjoy it rather than because you need the paycheck?

Give money to charity?

Help your children?

Leave a legacy?

Or simply have the financial freedom to say yes when an opportunity comes along?

These are financial planning questions, too.

Money is a tool. The purpose of financial planning is to figure out how that tool can support the life you actually want to live.

Financial Planning Has Become Life Planning

That’s why I think the traditional definition of retirement planning is becoming outdated.

It’s not just about accumulating enough money and picking an investment portfolio.

It’s about creating a plan that can adapt to a longer life.

The goal isn’t simply to retire with a certain account balance.

The goal is to understand when you can retire, how much you can comfortably spend, how to manage taxes, how to protect against unexpected risks and how to make your money last for as long as you need it.

And perhaps most importantly, it’s about having confidence in the decisions you’re making along the way.

Living longer has changed the financial planning equation.

We aren’t just planning for retirement anymore.

We’re planning for the rest of your life.

That’s a much bigger—and much more meaningful—job.

Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

Colin Symons, CIO Lloyd Financial Group

S&P Flash PMIs were very strong, with Services PMI 58.7 vs. exp. 55.8 and Manufacturing PMI 57 vs. exp. 53.7. That moved the Composite to 58.4 vs. prev. 56, a 5Y high. All that sign of a strong economy caused rates to spike and stocks to crash, as the specter of more rate hikes rises.

After the strong PMIs, the 5Y T auction had a tail, meaning the accepted rate was higher than the current rate, with the 5Y yield hitting 5% for the first time since 2007. Bonds aren’t popular at the moment.

Interestingly, the earlier 2Y T auction went just fine.

Eurozone PMI saw Manufacturing unchanged at 52.7 while Services rose to 53 vs. exp. 51.4, bringing the Composite to 53.1 vs. exp. 51.7. Pretty darn good, though not for bond prices.

Jobless Claims and New Home Sales today.

Bottom line: Strong PMIs led to a freakout in bonds.

Click here to schedule a meeting — I’m here to help you take the next step toward financial freedom.

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