Live Long, Live Healthy

Does Your Healthy Lifestyle Pose Additional Risks to Your Financial Plan?

By Steven Higgins, Financial Advisor, Principal 

Planning for retirement requires an understanding of the risks and strategies to deal with things like market volatility, unpredictable investment returns, and unexpected health care costs.  While we often focus on the role of investments, we also need to focus on other key factors that will impact how well your retirement plan will work for you.

Since his retirement at the tender age of 57 in 1990, HD client Charlie has biked more than 147,000 miles (85,000 of which belong to his wife Barbe, who pedaled behind him in tandem). Charlie will celebrate his 84th Birthday with his annual 100 mile ride this year.

Time is one of the most critical elements when considering income planning in retirement.  Of course we all want to live long, healthy lives, but extending the time of retirement is arguably the most challenging risk to navigate.  One for the greatest fears of retirees is that they will outlive their money.  For decades the current investment models as they relate to retirement income have been designed around broad demographic averages.  The problem with applying investing concepts based on averages is that they inadvertently hide the risks for those people who experience lives well outside the averages.   According to the Social Security Administration, since 1950 the average retirement age declined from age 68 to 62 by the year 2015.  Over the same period life expectancy in the U.S., factoring out child mortality, increased from 71 years to  81 years (Bureau of Labor and Statistics).  We can say that since 1950 the average length of retirement has gone from less than 3 years to 19 years.  Needless to say, funding a 3 year retirement income with investments is very different than funding a 19 year retirement income plan.  In the past, simply keeping your money safe was the priority, now many retirees will require their investments to grow in order to meet their retirement  goals.  Pre-retirement preparation and ongoing investment management will be more important than ever as simply putting your money in the bank will no longer do.

The look of retirement is changing. HD client Megumi Kumano spends part of her retirement racing with her donkey.

Does your healthy lifestyle increase your risk of financial pain during retirement?

There are countless benefits to enjoying a healthy lifestyle.  Eating food that is good for you, being active, and avoiding big health risks can help you enjoy a long healthy life.  Nowhere is this more evident than our home state, Colorado, often considered one of the healthiest states. In Colorado, healthy is a fashion statement.  Let’s examine Broomfield County where our office is located. 

HD client Paul Scott celebrated his retirement with a 50 day bike ride from the coast of Oregon to the coast of Maine.

All this healthy living is great right?  When it comes to retirement planning, living a long time is a challenge.  MyStrategy Independence™ is our retirement planning tools that helps people  understand their retirement plan.  When developing a retirement strategy we consider longevity, spending, income, inflation, and investment returns.  As we adjust the different variables, it is evident that the longer we extend the retirement length, the less  predictable we can be in regards to success of the retirement plan.  In simple terms, if you have $100,000 and you want to spend $50,000 per year and you will live for 2 years, financially, you are going to make it.  If you live  for 5 years, you are in trouble as the investment return required to meet your goals is unrealistic.

As stated earlier, the average retirement period in the U.S. has increased over 600% since 1950.  If you live a healthy lifestyle, you may live significantly longer than the average.  Since the year 2000, Broomfield County experienced an almost 600% increase in residents over age 85, the fastest growing demographic.  It isn’t that Broomfield is a bastion for retirees, the growth has primarily been organic.  People are simply living longer.  People are also staying more active.  Retirees are certainly not confined to the front porch or the “Lazy Boy.”  Activities, like running, golf, yoga, hiking, and other active endeavors are keeping retirees busy.  So while people are living longer they are also staying active longer, allowing them to enjoy social activities and travel longer into their lives.  Increased years of mobility means an increase in years of spending as well.

What can you do?

We certainly are not advising our clients to abandon their healthy food and active lifestyles in an attempt to shorten the length of retirement.  There are other adjustments that you should consider. 

No financial plan can predict the future and every scenario will experience surprises, both good and bad.  It is important to remember that your retirement life is no different than your working life.  Unforeseen expenses are to be expected and flexibility in your budget will give you greater ability to deal with them.  It is crucial that you develop a strategy that helps you understand the nature of your expenses, income, and investments.  Heading into retirement without a strategy and process to review your strategy could lead to a devastating financial reality.  Our process MyStrategy Independence™, is designed to model and maintain your retirement income over time.  Investments are important; however, understanding your risks is the most important aspect of developing your retirement strategy.  Live Long, Live Healthy!