Americans today could spend more years in retirement than they thought they would. According to the U.S. Social Security Administration, those who reach age 65 today can expect to live about 20 more years, on average. About one in three of those 65-year-olds will live past age 90. And that means it may be time to revisit your retirement income plan.
“In the past, people would retire at 65 or later and expected their retirement would last a relatively short period of time,” says Catrina Crowe, Senior Wealth Planning Strategist with Wells Fargo Private Bank. “Now, people retire at 50 or 60, and they may have 30 or 40 years ahead of them. That’s a huge change.”
To help build a financially secure retirement future—one that supports the life you want while still maintaining your legacy plans—consider these four key strategies.
1. Stay diversified. Investors used to shift most of their investments from growth models to conservative portfolios upon retirement. But to help preserve your wealth through a retirement that could span several decades, advisors now recommend keeping a healthy portion of your portfolio in equities.
Crowe says she prefers to see multiple streams of income. Examples include investing in commercial real estate to provide passive income or turning real estate into something that can generate rental income. (For more information on generating income from real estate, see “Income-Producing Properties: What You Need to Know.”)
2. Put together a cash flow plan. As you get closer to retirement, accurately predicting your spending related to your goals can help you make sure your wealth lasts. First, consider what kind of future you want: Are you going to downsize, move into a senior living community, or stay at home? Do you want to travel?
Using that information, you can work with your wealth advisor to build a cash flow plan that takes you to age 95. Review the plan at least once a year and make adjustments if necessary. (See “Retirement Income and Spending: 5 Strategies to Find Balance” for more on developing a cash flow plan.)
3. Plan for healthcare costs. Work with your advisor to come up with a realistic estimate of your healthcare costs in retirement. If you’re covered by a high-deductible health plan, you may want to consider putting some money into a health savings account (HSA) while you’re still working. That way, you can save for future and current medical expenses.
Getting long-term care insurance might be worth considering as well. That’s because most Americans older than 65 will need long-term care at some point, according to the U.S. Administration on Aging. Long-term care is generally defined as a wide range of services that people may need if they’re chronically ill or disabled.
“The key is to run the numbers and make an educated decision on what’s right for you,” says Allison Gregory, Senior Vice President – Wealth Advisor for Wells Fargo Private Bank. The best time to purchase a policy is when you’re in your 50s or 60s.
4. Consider a wealth transfer. The Tax Cuts and Jobs Act of 2017 doubled the estate and gift tax exemption until 2025, so this could also be a good time to transfer assets. Initiating a wealth transfer while you’re still living gives you the chance to have a positive impact on your loved ones’ lives, whether it’s helping your child buy a first house or invest in a new business.
Philanthropy is another option; your advisor can share the pros and cons of different types of charitable giving. “Seeing how your donations make a difference has been really meaningful for some of our clients,” Crowe says. (Learn more about family wealth plans at “5 Wealth-Planning Best Practices That Can Improve Your Family Relationships.”)