Growing and preserving wealth are critical components in determining your financial well-being after you retire. But, the rising trend in life expectancies begs the question – can your wealth last your entire lifetime?
It is no secret that average life expectancies in the U.S. have been climbing over the years. Longer lives entail longer time horizons for financial support.
Source: Data from the Centers for Disease Control and Prevention
A 65-year-old American’s average life expectancy is more than 84 years according to the Centers for Disease Control and Prevention . Moreover, a life expectancy figure is only an average, there is still a number of people living beyond this expectancy. According to the Social Security Administration, around one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95.
On top of that, traditional retirement income sources (from the government and employers) are laden with potential constraints. According to a 2014 Gallup poll, less than 21% of workers were expecting a steady stream of pension from their former employer in retirement. As for Social Security, there is a possibility that funds will be depleted in 2034, per the latest projections by the Social Security Administration. Longer life expectancies could potentially add to these challenges.
What’s more, people often face the biggest expenses with healthcare, kids’ education, and unforeseen life changes when they’re not working. And, who’s to say these won’t become more expensive over time?
Sure, these concerns are real. But, can a longer lifespan actually cause you to outlive your nest egg? Not if you have an effective retirement plan.
Does Living Longer Make Your Portfolio Vulnerable to More Uncertainty?
Let us get one thing straight: rising longevities should not require ruthless or drastic compromises to your living standards when you approach retirement. Instead, what’s needed is a financial discipline that can take care of your changing needs with age without losing sight of your long-term financial goals.
The first step towards achieving that discipline is to save. By putting money regularly into your savings/investment pot, you won’t be pressured into making painful sacrifices to your lifestyle when you’re not working.
Having said that, we understand the challenges of building a nest egg solid enough to support a longer lifespan against potential uncertainties. There could be changes in policies, taxes, inflation rates, market volatility and your health condition – factors that may not always be as simple for you to foresee for long time horizons.
That’s why an effective wealth management plan should have the flexibility to strategize investment positions per changing conditions. This is something that we, at Zacks Investment Management, strongly emphasize. Instead of pigeonholing a nest egg under a single strategy, we provide a customized analysis for every client, then use our independent market research and tools we’ve developed to design a customized investment portfolio based on each individuals investing needs.
Diversify Your Long Life
Many investors tend to rely largely on the “safety” of fixed-income to ward off uncertainty during retirement years. While exposure to bonds is important to mitigate downside risks, not having enough diversification in your portfolio could leave you flat footed against inflation. Estimating inflation over long swathes of time can be tricky. So, by holding on to fixed-income securities alone, you could end up eroding your nest egg’s worth – a risk which potentially gets magnified with longer life expectancies. That’s why, it is so crucial to have a well-diversified portfolio.
While bonds and other steady streams of income are important for offering downside protection, exposure to riskier assets such as equity can mitigate inflation risks. In addition, some cash/cash equivalents are necessary to meet urgent withdrawal needs especially in times of the market’s downside volatility or shrinking liquidity in a recession. At Zacks Investment Management, we build allocations based on an individual’s needs, for both before and after retirement.
Bottom Line for Investors
Living longer should not be a burden as long as you follow a financial discipline which can adapt to your evolving needs with age and can work around potential risks to your nest egg. At Zacks Investment Management, we review every client’s financial situation taking into consideration their individual risk tolerance and long-term financial goals along the way. That way, we ensure that longer life expectancies do not thwart their living standards. To understand how your current plans are in line with your retirement goals and time horizon, call us at 1-888-600-2783.
We have also put together a special guide to assist you in planning for a comfortable retirement – “Retirement Made Easy.” This step-by-step guide outlines how to plan for retirement and contains tips related to withdrawals, spending, and tax strategies. It also gives you a sneak peek into some of our top investment strategies. To get your free copy, click on the link below:
Disclosure
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.
Zacks Investment Management, Inc. is a wholly-owned subsidiary of Zacks Investment Research. Zacks Investment Management is an independent Registered Investment Advisory firm and acts as an investment manager for individuals and institutions. Zacks Investment Research is a provider of earnings data and other financial data to institutions and to individuals.
This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. The information contained herein has been obtained from sources believed to be reliable but we do not guarantee accuracy or completeness. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. No recommendation or advice is being given as to whether any investment or strategy is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole.
Returns for each strategy and the corresponding Morningstar Universe reflect the annualized returns for the periods indicated. The Morningstar Universes used for comparative analysis are constructed by Morningstar (median performance) and data is provided to Zacks by Zephyr Style Advisor. The percentile ranking for each Zacks Strategy is based on the gross comparison for Zacks Strategies vs. the indicated universe rounded up to the nearest whole percentile. Other managers included in universe by Morningstar may exhibit style drift when compared to Zacks Investment Management portfolio. Neither Zacks Investment Management nor Zacks Investment Research has any affiliation with Morningstar. Neither Zacks Investment Management nor Zacks Investment Research had any influence of the process Morningstar used to determine this ranking.