Over the last several decades, our life expectancy rate has continually increased. Today, the average expectancy is around 80 years in the United States. The U.S. Census Bureau projects longer life expectancy for decades to come. By the year 2060, life expectancy is projected to have continued its steady increase.
In addition to this forward-looking projection, life expectancies have, historically, increased consistently going back as far as 1950. Specifically, life expectancy has increased more than 10 years over the period from 1960 to 2017 in the United States. This is generally great news and may give us the opportunity to spend more time with family, travel, enjoy hobbies and find new passions. Of course, the other side of the coin is that living longer can strain traditional retirement plan investment models to the point that they may not fulfill most of our individual retirement goals.
While many commercials and ads would suggest that running a bed and breakfast or a vineyard in retirement may be the dream for some retirees, most individuals have a different vision for their retirement. Many simply desire the ability to live comfortably in retirement, leave a modest nest egg to loved ones, and potentially make a gift to a favorite charity. These goals can be obtainable, through proper financial planning both prior to retirement and during retirement.
With the importance of retirement planning and the impacts due to increased longevity in our society, having a competitive retirement plan option as part of an employer’s benefit plan has become extremely important. It can not only make a difference for an employee’s retirement planning, but it can be an impactful employee recruiting and retention tool for employers. Previous generations were more reliant on defined benefit plans such as pensions to supplement social security to meet their retirement income needs. In today’s world, employers typically have moved away from providing pension plans and more consistently offer defined contribution plans such as a 401(k) or 403(b). In a defined contribution plan, the employee and/or the employer contributes to the employee’s individual retirement account under the plan. Employers often offer employees an employee contribution match as part of their defined contribution plan, which can be an important benefit to helping their employees with their retirement savings. The contributions are generally invested, and the value of the account will fluctuate with the changes in the value of the investments. This is a reason why it is important for employers to also consider the investment fund options and retirement planning resources available to employees.
The investment portfolio allocation an employee chooses can vary greatly depending on their individual needs and preferences. Having a range of investment fund options available in the defined contribution plan can benefit the employee. This may allow employees to consider an asset allocation suited to their individual circumstances while helping them plan for their assets and income to last during a longer retirement period.
As pre-retirees prepare for their futures, implementing a financial plan and regular reviews of their financial plan and any asset allocations are essential to staying on track. Employers providing these resources as part of their benefits package can be helpful, as many employees may not know where to find these resources. When planning for retirement, it is important to not only consider their initial retirement goals but to look beyond the targeted retirement date and into retirement as well. While they may have a specific retirement asset goal in mind, a key piece of the planning process is how they will spend those assets in retirement.
Investors, especially those planning for retirement, may have been affected by the recent volatility. With an already extremely long period of historically low interest rates and the Federal Reserve indicating that interest rates will remain low for some time, investment portfolios that are primarily in traditional fixed income products such as Treasuries, CDs, money markets and bonds can create a challenge in the longevity of a retiree’s portfolio. This will look different for everyone, but it is important to identify events and expenses that could impact each employee’s retirement spending.
Regardless of the type of change (financial markets, the economy or family dynamics), having a plan in place and being open to adjusting it as circumstances dictate can help weather storms, identify opportunities and stay on track. Plan, review, adjust and repeat as often as needed or desired. Financial advisors and a financial plan can help provide guidance to address the changes that occur over time and be a steady reminder of their long-term goals and vision. A good financial plan is never really finished. It will adjust and change as a person’s life and goals change.
Jason Romero, a financial advisor with Raymond James Financial Services, Inc., has spent more than two decades helping clients manage and preserve their wealth. He understands the dynamics of wealth and how to balance the complex forces at work and adapt as conditions change.
Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Securities offered through Raymond James Financial Services, Inc. member FINRA/SIPC. Investment products are not deposits or obligations of the credit union, are not NCUA insured and not guaranteed by the credit union. They are subject to risk and may lose value.
Desert Financial Credit Union and Desert Financial Wealth Management are not registered brokers/dealers and are independent of Raymond James Financial Services, Inc.
Investing involves risks and you may incur a loss regardless of the strategy selected. No investment strategy can guarantee your objectives will be met.