The retirement you are planning for is probably longer than the retirement you grew up watching. That’s the single most consequential demographic fact in personal finance today, and it’s the one most plans don’t fully reckon with.
A couple retiring at sixty-five in good health today has roughly a one-in-two chance that at least one of them will live to ninety. A one-in-four chance that one will reach ninety-five. A meaningful chance — small, but not negligible — that one will reach a hundred. The plan that runs out of room at age ninety is not a plan; it is an optimistic projection.
The question isn’t “what if the market is bad.” The question is “what if you’re alive longer than you expected.”
What changes when you plan for thirty years
Several things, all of them quietly important.
Sequence-of-returns risk becomes the central problem. A bad market in the first five years of retirement, while you are withdrawing, can ruin a plan that would have worked easily if the bad market had come ten years later. Two retirees with identical lifetime average returns can have radically different outcomes if one happens to retire into a downturn. The plan has to be designed for the sequence, not just the average.
Inflation becomes a real adversary, not a footnote. A three-percent inflation rate doubles your cost of living in twenty-four years. If your retirement plan ends with the same nominal income it began with, it ends with about half the purchasing power. Real returns, not nominal returns, are the only thing that matters over decades.
Cognitive change becomes a financial event. Most retirees will, at some point, lose some of the capacity to manage complex finances themselves. The decisions that matter most — when to claim Social Security, how to handle a windfall, when to downsize — are not the decisions you want to be making for the first time at eighty-five. The plan should be written down clearly enough that someone else can read it, and a trusted relationship should be in place long before it is needed.
Healthcare becomes the plan within the plan. Medicare is necessary; it is not sufficient. The cost of late-life care — long-term care, in-home help, the difference between “aging in place” and “aging without dignity” — is the single largest unfunded liability for most affluent retirees. There are several ways to plan for it. Pretending it won’t happen is not one of them.
How we plan for it
A few practical things we do for any client who’s planning for a long retirement:
Stress-test the plan against bad sequences, not just bad averages. A plan that survives the 1973-1974 starting point, or the 2000-2002 starting point, is meaningfully more robust than one that just averages historical returns.
Build in flexibility, not optimism. A plan that requires everything to go right is fragile. A plan that has options at every five-year checkpoint — sell the second home, move closer to family, downsize, accelerate gifting — is robust.
Coordinate with the rest of the family early. Estate documents, beneficiary designations, healthcare proxies, and the names of the people who will eventually act on your behalf are part of the plan. They belong in the plan, not in a drawer.
Talk about the plan, not just the portfolio. I have known clients for twenty years whose portfolios are perfectly managed and whose plans were never written down. That is a portfolio. It is not a plan.
The retirement you are planning for will probably be longer than the average retirement of the previous generation. Plan accordingly. Quietly, integrated, attentively, designed to last.
If you’d like to talk about whether yours is doing that, you know how to reach me.
— Bruce