How does living longer and enjoying a more active and longer retirement affect planning and investing for retirement?
With people living longer, the definition of “old” is changing. Today, investors feel that for their parents’ generation, 62 was the age when someone became “old.” Today, most people don’t feel old until they are in their 80s. Additionally, being old is no longer defined just by a number, but more so by the point at which individuals begin to lose their independence or have to begin to plan for that reality.
For those nearing or in their post-career phase, “retirement” is not a sign of being old, but the beginning of a new journey, with multiple phases, which together may last as long as 30 years.
The first phase of retirement is one of “transition.” Most investors under 65 do not expect to stop working completely at age 65, but they do picture working differently—redefining their priorities or rechanneling their talents. Such changes may include becoming more involved with a philanthropic endeavor, turning a hobby into a business or merely achieving a better work/life balance.
The second phase might be called “my time.” The focus may be on visits with family and friends or on general travel and leisure activities. This is the time that investors reward themselves for their hard work and catch up on all those things they aspired to do but just never had the time for. Many feel that while they still have their health, it’s time to tick off the items on their “bucket list.”
The last phase of retirement involves slowing down, living a simpler life and reflecting on one’s life and legacy planning. Unfortunately, this phase may also involve an increased emphasis on health concerns, including costs which many investors underestimate.
With people living longer, the definition of “old” is changing.
Pre-retirees should expect their financial needs to vary across the phases of retirement. They may also face other challenges in funding these needs, if they provide financial support for their adult children or aging parents. Healthy and active retirees often spend
more money than they anticipated in the early stages of retirement and underestimate healthcare expenses in the latter stages of retirement. Assisting clients to construct a truly comprehensive financial plan that takes into account these potential responsibilities as well as the different phases of a potential 30-year retirement is thus incredibly important.
A well-constructed plan will help an individual enter retirement with confidence and reasonable expectations, so he or she can truly enjoy these golden years.
A retirement that may be more than half as long as a person’s working life means that the investment time horizon of today’s pre-retirees and retirees is completely different from that of their parents. Additionally, historically low rates of return from fixed instruments are making asset-allocation decisions more difficult. We believe that interest rates will rise in the years ahead, which adds a new risk to retirement portfolios: Inflation may eventually return. Building a plan which includes flexibility and reviewing it annually can help mitigate those risks for clients.
Overall, investors tend to underestimate how much income they will need in retirement and how long they may require that income. With retirements that can last 30 years, designing, reviewing and adjusting an investment planthat takes into account the current realities of retirement is more important then ever.
Adopted from UBS Investor Watch 4Q 2013. About the survey: UBS Wealth Management Americas surveys U.S. investors on a quarterly basis to keep a pulse on their needs, goals and concerns. After identifying several emerging trends in the survey data, UBS decided in 2012 to create the UBS Investor Watch to track, analyze and report
the sentiment of affluent and high net worth investors. UBS Investor Watch surveys cover a variety of topics, including: overall financial sentiment; economic outlook and concerns; personal goals and concerns; key topics, like aging and retirement. For this fifth edition of UBS Investor Watch, 2,319 U.S. investors responded to our survey from September 24-30, 2013. Investors surveyed have at least $250,000 in investable assets; half have at least $1 million in investable assets. This UBS Investor Watch includes an oversample of 416 UBS clients; results are weighted by UBS clients/non-clients to account for this. (full report available upon request.)
Stuart C. McLeod and Camille Valentine are Financial Advisors with UBS Financial Services Inc. in One Post Office Square, Boston, Mass. UBS Financial Services Inc. Financial Advisor(s) engage Worth to feature this article. As a firm providing wealth management services to clients, we offer both investment advisory and brokerage services. These services are separate and distinct, differ in material ways and are governed by different laws and separate contracts. For more information on the distinctions between our brokerage and investment advisory services, please speak with your Financial Advisor or visit our website at ubs.com/workingwithus. The strategies and/or investments referenced may not be suitable for all investors. UBS Financial Services Inc., its affiliates and its employees are not in the business of providing tax or legal advice. Clients should seek advice based on their particular circumstances from an independent tax or legal advisor. The views expressed herein are those of the author and may not necessarily reflect the views of UBS Financial Services Inc. Member, FINRA/SIPC.
This article was originally published in the August/September 2016 issue of Worth.