February 20, 2020
One of the reasons I was eager to write The Ultimate Retirement Guide for 50+ is because today’s retirement is so very challenging. Many of you will not have an old-fashioned pension to rely on, and will instead have to make big decisions that will impact how much income you receive from Social Security, and how to make withdrawals from your retirement accounts at a pace that won’t have you run out of money.
I have plenty to say about both in the book, but right here I want to share with you the single fact that is key to making smart decisions: There are very good odds you will live into your 90s.
A 65-year-old woman today, in average health, has a 44% chance she will still be alive at age 90.
A 65-year-old man, in average health, has a 33% chance he will still be alive at age 90.
A married couple, both 65, has a 62% chance one of them will still be alive at age 90.
If you are in above-average health, your odds of living into your 90s are even higher.
As I explain in my new book, I think a cornerstone of a retirement plan for everyone without a serious illness today, should be that you expect to live until at least age 95. For total sleep-at-night calm, or if like me you have family who lived even longer, setting your retirement plan to age 100 makes terrific sense. (My mother was convinced she would die in her 60s. She died at 97.)
Once you embrace the prospect of a very long retirement, it should compel you to make some smart planning moves:
- Wait until age 70 to begin taking Social Security retirement benefits. The benefit you are entitled to at age 70 is 76% higher than the benefit you get if you start at age 62, which is the earliest you can claim retirement benefits. If you live into your mid-80s you will claim more by waiting than if you started collecting earlier. And if you live into your 90s I think you will be so glad to have the higher payout.
I also want to share my thoughts on something that I know weighs on many of you: that Social Security is going broke and so you should collect now while you can. I understand the concern, but I want to point out that it is not going broke. It will have a funding shortfall in less than 15 years, that if we do nothing as a country could require benefits be cut by about 25%. That said, there are plenty of reasonable solutions to fix the funding gap. If you care about retaining your benefit, let it inform your voting choices. I for one, am remaining confident that we will fix it –and that if history holds, changes to the program will not affect anyone near or in retirement.
- Keep some of your portfolio invested in stocks. It’s natural to want to invest more of your money in safer cash and bonds as you age. And that makes sense. But don’t give up on stocks entirely. If you live 30 years in retirement, you need to anticipate that many of today’s expenses will cost a lot more decades from now. If inflation averages a moderate 2.5%, a bill that runs you $100 today will cost you about $185 in 25 years. Stocks, over long periods, have provided the best inflation-beating gains. As I explain in the book, a good rule of thumb you might want to consider is to subtract your age from 100. That is how much you might want to keep invested in stocks. So, if you are 65 today you might keep 35% of your retirement investments in stocks.
- Create the legal documents that will protect you and help your loved ones. I respect that at a young 50 or 60 or 70 you are on top of all your financial matters and need no help navigating your health care. The ultimate retirement will extend your good health for many more years. But let’s also be honest. At some point, many of us will need more help. Staying on top of the bills and the RMDs and the taxes can become harder. I think we have all known someone –perhaps many people – who at the end of the life couldn’t stay in charge of everything, let alone communicate their health care wishes.
There is no more essential retirement planning step than to create the documents that will protect you and help those you designate to care for an older you. I also want you to appreciate that once you have a living revocable trust, will, advance directive, and health care proxy set up you will be able to enjoy the ultimate retirement.
You can’t live to your fullest if you are still worrying what may happen if you become ill, and you certainly can’t control what happens once you die. The essential estate planning documents take all that worry off the table.