Unlike previous generations, many Baby Boomers and Gen X’ers expect to maintain their current lifestyles through retirement. However, it requires careful planning, execution, and continuous optimization to ensure their lifestyle choices are sustainable for decades.

Consulting a comprehensive fiduciary financial planner may be a great first step in obtaining the necessary guidance to help ensure you are on track to meet your financial goals and desires.

With longevity shifts, periods of heightened inflation, market volatility, and uncertain increases in taxes and healthcare costs, traditional financial planning strategies may cause many to potentially outlive their savings.

Let’s consider five common pitfalls that may lead to you outliving your money:

1. People are living longer.
2. Markets are more volatile.
3. Taxes may increase.
4. Inflation has been increasing.
5. Healthcare costs are on the rise.

Longevity Risk

Many people believe that longevity is a good thing, but as a result, it increases the risk that you may outlive your financial resources.

Longevity is often called “The Risk Multiplier”. This means that the longer you live, the more chance you have of encountering the other risks to the safety of your money.

People are living longer. According to the Social Security Administration, a 65-year-old man can expect to live to about 84, while a woman to 87. A 65-year-old man has a 20% chance of living to age 90; a 65-year-old woman has a 33% chance of living to age 90. Additionally, our U.S. centenarian population (people aged 100 and older) is expected to quadruple over the next three decades.

Market Volatility

During your accumulation years, and up until approximately 5 – 10 years prior to retirement, market volatility may disrupt your investment performance, but it may recover.

Once you enter your decumulation years, a market downturn may pose a more significant threat to your wealth portfolio, especially during the 5-10 years prior to and after retirement.

Sequence of returns is the risk of negative market returns occurring late in your working years and/or early in retirement. Withdrawing funds for living and lifestyle expenses during a market downturn has the potential to significantly reduce overall retirement savings. And it may affect the longevity of your retirement income.

For example, let’s say you retired in 2000 with $1 million and withdrew $60,000/year to live on. Over the next three years, the S&P 500 returned negative returns of -9.11%, -11.98%, and -22.27%. After three years, your “nest egg” is now down to $496,851. Ouch!

The 2008 financial crisis and the 2020 COVID pandemic are more recent economic events that demonstrate how well-planned investment performance can be impacted with uncertain recovery timelines.

Tax Implications

The tax code is approximately 75,000 pages long and may change multiple times every year based on decisions made by Congress.

Many people have saved a lot of their money in tax-deferred retirement plans. At the time the money was earned, taxes were not taken out and sent to the IRS. Consequently, when they begin withdrawing their savings for living and lifestyle expenses in retirement, that money will be taxed at ordinary income tax rates and brackets in effect at the time of the distribution.

CPAs and tax preparers are tasked with looking back at the prior year to prepare your tax return. However, they are not necessarily forward-looking tax planners. Tax planning in the context of your comprehensive financial plan strives to help reduce taxable income and preserve your wealth.

Inflation Impact

Inflation is often considered the “hidden tax.” From 1960 to 2023, the average inflation rate was 3.8%. An item that cost $100 in 1960 costs $1,045.29 at the beginning of 2024.

Many retirees find themselves on fixed income. As prices for their living expenses rise, it becomes increasingly more difficult to sustain their lifestyles. Many find themselves either lowering their lifestyles or going back to work.

Therefore, it’s important to consider the future costs of goods and services as you plan your financial future. Strategies exist to help build in contingencies for inflation and its financial impact on your future.

Healthcare Costs

Healthcare costs are rising faster than average inflation. In a recent study, it is estimated that a 65-year-old couple retiring today could need $315,000 to cover healthcare costs in retirement.

Not only that, nearly 70% of people turning 65 will need some type of long-term care. Long-term care is a range of services you may need to meet your personal care needs. Most long-term care is not medical, but rather assists with the basic personal tasks of everyday life.

These personal tasks are referred to as Activities of Daily Living (ADLs) and include bathing, dressing, toileting, transferring, incontinence, and eating.

Proactive planning for these potential costs may be important to help ensure your healthcare expenses do not compromise your financial stability.

Help Ensure You Don’t Outlive Your Savings

A fully integrated and all-inclusive financial plan starts when you compare your projected income vs. expenses through life expectancy. Many facets (variables) must be coordinated to balance your equation including:

• Social Security benefits
• Pension income
• Annuity income
• IRA distributions
• Taxable account distributions
• Rental income
• Sale and purchase of homes
• Tax rates and brackets
• Expenses for your household, daily living, insurance, healthcare, transportation, education, debt payoff, entertainment, etc.
• Long term care

Comparatively, you’re probably not going to assemble all the tools, supplies and knowledge, and execute the steps necessary to place a permanent dental crown in your mouth. It’s a complex and detailed process. If not executed properly, it could result in future pain, infection, loss of the crown, and replacement of the tooth.

The same is true for your financial plan. There is knowledge and many financial tools and strategies that are necessary to custom design, build, and implement a comprehensive financial plan unique to you and your financial goals and desires. It’s like putting together the puzzle pieces of your current financial life to create your unique financial masterpiece.

Ready to get started putting together your unique financial masterpiece? Contact us today for a complimentary, no obligation intro meeting.