Living longer means retirement is no longer a short final chapter, but a 30-year-plus life phase. This demands an adjusted approach to financial planning because it reshapes the fundamental mathematics of retirement, investing and intergenerational wealth planning.
Retirement horizons are elongating
Historically, you accumulated wealth while working, retired at 65, de-risked your portfolio and planned to draw down your assets until you no longer needed them by around age 85. However, today’s 65-year-old could live well into their 90s, and according to certain medical predictions, possibly even past age 100.
Let’s look at the four areas of retirement planning that need adjustment to accommodate this new reality, namely:
- Portfolio strategy
- Withdrawal sequencing
- Healthcare, long-term care and incapacity
- Inheritance timing
Portfolio strategy must balance growth and income
A retirement spanning three decades alters how investment portfolios should be positioned. Moving into conservative assets too quickly can create “shortfall risk”, that is, not having enough assets to support your retirement lifestyle needs. You navigate this by ensuring you have the correct proportion of long-term growth assets within the portfolio to fund 30+ years of spending, while still staying ahead of inflation.
Because retirees depend on regular withdrawals from their portfolios while having less capacity to absorb deep, prolonged market downturns, the balance of conservative assets relative to growth assets is critical. A well-formulated plan aligns everything: the appropriate asset allocation, withdrawal rates, cash reserves, detailed modelling and tax efficiency.
Withdrawal sequencing gains additional importance
During the accumulation phase of our lives, mostly whilst we are working and able to save, market declines can be recovered over time by diligently sticking to the strategy. They therefore have less of an impact on a portfolio over the long term.
Once withdrawals begin, however, the sequence of returns becomes of paramount importance. Drawing down too heavily and too early, particularly if combined with a market downturn, could permanently impair your capital and ultimately impact the projected longevity of the portfolio. Strategic planning of withdrawals within your portfolio is therefore essential.
What about healthcare, long-term care and incapacity?
Healthspan and lifespan are seldom perfectly correlated. Statistics show that we still incur the majority of our lifetime health costs in the final years of our existence. As a result, health cover and potential long-term care costs also require careful consideration.
The goal is not to predict exact medical costs, but to ensure that your overall financial plan provides sufficient liquidity and flexibility to respond to different circumstances when or if they arise. Equally important is planning for the possibility of incapacity: who will make financial or personal decisions if the time comes when you are unable to do so yourself?
Inheritance timing and purpose are also changing
Longer lives delay inheritances. Heirs who might previously have received wealth in their 30s or 40s may now only inherit near or after their own retirement. This could potentially change the purpose of inherited wealth from funding a home or business to supplementing an heir’s own retirement and estate planning.
With more generations alive simultaneously, wealth planning could become a family exercise. Conversations could revolve around assisting adult children, who may also have children of their own, with funding for education or family investments.
In summary
Proactively taking necessary steps, staying involved in investment decision-making, and maintaining a clear understanding of your financial goals can make all the difference to a longer retirement.
At Netto Invest, our role is to offer objective support and guidance so that you can navigate this as effectively as possible – with the least amount of stress! We work with our clients (and their families) to design financial strategies that reflect their values, goals and specific intergenerational dynamics.
Jonathan Botha, CFP®
B.Com
