When an American retired in the 50’s or 60’s they often did so with a full pension, social security and a life expectancy of 9 or 12 years. The future retiree should expect less income from corporate pensions and government entitlements and perhaps 20, 25 years or more of active and/or assisted retirement years.
Advancements in public health, food science, sanitation, pharmacy, surgery, and “wellness-oriented lifestyles” have resulted in longer life expectancies. A recent article in the Washington post revealed scientists have successfully edited the DNA of human embryos to “erase a veritable heart condition” cracking open the doors to a controversial new era in medicine. While such advancements are received with both excitement and horror, they probably require a different approach to retirement income planning and retirement health care and custodial care strategies.
Timing is everything. In 1930, 5 years before Social Security legislation passed, the average life expectancy in the U.S. was 59.7 years while the program was designed to pay income after retirement at age 65. The number of people who could statistically expect to live long enough to collect was limited and the percentage of people older than 65 was less than 6%. Now, those aged 65 and above make up 12% of our population and that number is expected to hit 19% by 2030.
The retiree of the 50’s and 60’s could often park whatever retirement money they had in safe income-oriented investments while relying primarily on pensions and entitlements. Future retirees will need to be more cognizant of having their savings exceed – or at the very least – keep pace with inflation, which will have a pronounced effect on livings standards and healthcare costs over an extended period of time.
For many retirees, the most practical way to match or exceed inflation is by investing in broadly diversified mainstream public equities. A distrust in markets and public companies has caused many retired investors to shun public equities in favor of other investments such as real estate or savings accounts which often results in either too much risk and illiquidity or not enough inflation protection.
Today, there are a plethora of ways for retired investors to gain exposure to a diversified pool of public equities. According to Statisa, there are 9,511 Mutual funds and at least 2000 exchange-traded funds, many of which invest in mainstream equities. The key for tomorrow’s retiree is too rise above the noise of the markets and media and invest in these vehicles pursuant to an investment policy statement and appropriate asset allocation. This will offer the investor a relatively simple approach to funding retirement spending and healthcare costs, adjusting for inflation, over a significant time.
Extra years in retirement or semi-retirement can be a blessing or a curse and the proper investment approach can improve your odds that it’s a blessing and help contribute towards financial security and peace of mind later in life!