The Realities of Retirement. Do Not Rely on Conventional Wisdom

The Realities of Retirement

Do Not Rely on Conventional Wisdom

By Brian J. Cunningham, CFP®

A longer horizon

In the 20th century, reaching 90 was a much-celebrated milestone. Flash forward to 2023, and we pay little attention until someone turns 100. The population 95 years and over experienced a growth rate of 48.6%, increasing from about 425,000 in 2010 to 631,000 in 2020. For non-smokers in excellent health, there is almost one in three chance that women will live to age 95 or beyond and one in five chance that men will live to age 95 or beyond. Now that people live much longer if you choose to retire at 65, your retirement years shift from the traditional 10 to 15 to more than 20 and 30 years of living off your investments. 

A lifestyle you can live with

Younger clients often come to me after marriage to help them develop a retirement plan for the future they will spend together. Our first meeting can highlight significant discrepancies in their attitudes about spending and saving. I have been pleased to circumvent deep disagreements by listening to their concerns and developing plans that allow for flexibility while supporting their shared retirement goals. I provide them with data they can rely on to make informed decisions about their finances, allowing them to enjoy life to its fullest and indulge in some luxuries while maintaining their agreed-upon investment levels. Young couples are particularly motivated when I explain how increasing their investment level from 8% to 9% when they start saving in their late 20s can put their retirement income in a completely different financial stratosphere.

Spending trends

Many retirement plans assume consistent spending across the decades remaining in your life. In my experience, and according to the Bureau of Labor Statistics, your age can profoundly impact how you spend. For newly retired clients (in the "go-go" years) aged 55-64, average spending is $64,937. They are usually at their healthiest and have time and energy to travel and take up new activities and hobbies. Retirees aged 65 to 74 ("slow-go") tend to decrease their spending and activity level, with an average annual spending of $52,356. By 75 and older ("no-go" years), health issues often become more prevalent, limiting travel and activities to an annual $40,839. Your experience may differ; many variables can impact your anticipated yearly spending. The size of the estate you hope to leave behind will also affect your decisions in this area.

Make your move?

Retirement can be a time when downsizing seems attractive. "I don't need all that room. The maintenance is expensive. It hurts to climb stairs." At a certain point, moving into a smaller space might seem like a financially sound and lifestyle-improving decision. An apartment might sound good, or the conveniences of an independent living community with the option to transfer to a higher level of health care when needed. Several variables affect this decision. If you need to pay off your mortgage before you sell, and you have a 3.5% interest rate, I'd advise against it. We'd have a different discussion if you had a 7% interest rate. Often, when I guide my clients through the pros and cons of moving, they change their minds. Considerations include needing that extra room when grown children visit with grandchildren or move back in temporarily. They should consider the lack of privacy they will experience in an apartment or how loud neighbors on the floor above can be. Making a long-distance move to be nearer to children and grandchildren may seem like a great plan, but leaving behind people and places who have been part of your life for decades can be more difficult than imagined. 

Find a trusted partner

The best advice I can give those planning their retirement, whether in their 20s or embarking upon their last years of work, is to involve a professional wealth manager in your plans as early as possible. Find someone you trust to guide you through every step of your life as your income, life situation, health, and family issues change throughout the years. Be honest with them, and most importantly, with yourself, about what is important to you in achieving your life goals and how you want to live during the last decades of your life. Your financial planner will provide advice specifically tailored to your objectives, with a shared commitment to meeting your goals. 

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification and asset allocation do not protect against market risk.