Question: My wife is worried about us running out of money in retirement. But I don’t see any point in being rich when I’m too old to enjoy it. Where’s the balance here?
Answer: We need to talk about the retirement smile.
And I’m not talking about that silly grin you daydream about having the day you walk out of your office for the last time.
Your wife is worried because women tend to outlive men. Well, first they take care of us during a long period of illness, spend all the money we both have, then we men have the good sense of timing our death before the money actually runs out. We thus leave our dear wives to figure out how to live 20+ more years in “retirement” with no money.
Don’t believe me? Ask your wife and she’ll give you the names of several women she knows who fit the description above.
But I get your point. Let’s don’t be completely morbid about this. You want to plan for an enjoyable period of retirement, and we all instinctively know that we’ll be in the best physical (and perhaps mental) condition to enjoy those years earlier in our retirement.
Some have described this in general stages: first, there are the “go-go” years. Your health is good, you want to travel and enjoy yourselves, so you tend to spend more.
Then come the “go-slow” years. You’ve been there, done that and your energy level may have naturally declined. Your interest in “going” is less, so you spend less on travel and entertainment.
Finally, the “no-go” years arrive where either our interest or ability to do much more than live simply from day to day declines. We aren’t doing much so we aren’t spending much.
Recent studies have adjusted that view to account for medical and long-term care expenses later in life. As lifestyle expenses decline over time, medical expenses tend to rise. Some wonky, cleaver types have charted this spending pattern and it looks like a smile, starting higher at the beginning, dipping down in the middle and rising again towards the end.
So what’s the best way to maximize your spending capacity in retirement? I believe the solution lies in a careful balance of accumulation and actuarial solutions.
Accumulation solutions broadly include any sort of account to which you can add money and which (hopefully) grows over time. This obviously includes bank savings accounts, mutual funds, brokerage accounts and certain types of deferred annuities. IRAs and 401Ks also fall into this category. Accumulation solutions dominate the retirement planning landscape today.
Actuarial solutions broadly include any sort of insurance or pension benefit that pays out based on age (retirement) or life event (such as a long-term care, chronic illness or death). The actuarial solutions provide a safety net in the event you or your wife incurs any of the expenses that can occur on the backside of the “retirement smile.”
Historically, accumulation solutions tend to be the realm of brokerage houses and investment advisors. Actuarial solutions are usually sold by insurance company agents. Since they often compete for the attention and loyalty of the public, they tend to emphasize the benefits of their solution over those offered by the “other side.”
This is unfortunate and their failure to cooperate serves the public poorly.
Because only through the careful and thoughtful balancing of accumulation and actuarial solutions is it possible to keep the retirement smile from putting a frown on your face.
Byron R. Moore, CFP® is managing director / planning group of Argent Advisors, Inc. Email him at firstname.lastname@example.org. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5800. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc.No forecasts can be guaranteed. Argent Advisors, Inc. does not offer tax, insurance or legal advice. The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice