It's an unfortunate but true reality that the traditional idea of longevity isn't quite what it is used as the risk associated with running out of money too soon is very real. This reality is what is driving many different kinds of retirement calculations as well as safe-withdrawal-rate conversations, and arguably keeps many financial planners... The New Longevity Risk Most Retirement Plans Still Ignore. ...

Core Insights - The article discusses the considerations for a 68-year-old with strong savings contemplating retirement, focusing on the balance between financial security and personal fulfillment [2][6] - It highlights the importance of delaying retirement to maximize Social Security benefits and the potential financial impact of continued employment [4][9] Financial Situation - At age 68, individuals are past the full retirement age for Social Security, and delaying retirement until age 70 can increase benefits by 8% annually, potentially adding thousands to annual income [4][6] - A diversified portfolio following the traditional 4% withdrawal rule can generate $40,000 annually from a $1 million nest egg, but current market conditions suggest a safer withdrawal rate of 3.9% for 2026 retirees [5][6] Investment Performance - The S&P 500 has returned 13.64% over the past year, while the Aggregate Bond ETF (AGG) gained 6.96%, indicating a challenging environment for bonds due to rising rates [5][6] - The article emphasizes that traditional 4% withdrawal rules may be too aggressive given current valuations [6] Retirement Strategy - Working an additional one or two years can significantly enhance financial security, potentially adding $150,000 to $200,000 to savings when considering investment returns and reduced withdrawals [8] - Delaying Social Security benefits from age 67 to 70 can increase monthly benefits from $2,500 to approximately $3,100, resulting in an additional $7,200 annually for life [9]

Core Insights - The article emphasizes the importance of asset location in addition to asset allocation when investing retirement savings, particularly in a 401(k) plan [1][2] - It discusses various options for managing $750,000 in a 401(k) for a 67-year-old retiree, including the potential for partial withdrawals, rollovers to IRAs, or outright withdrawals [2][5] - The article highlights the need for a comprehensive understanding of personal financial situations and retirement goals before selecting an investment strategy [2][12] Investment Options - Leaving assets in a 401(k) may provide lower-cost investment options, such as target date funds and institutional pricing on mutual funds, which can be beneficial for retirees [4] - Moving assets out of a 401(k) can allow for consolidation with other retirement savings and access to a broader range of investment options [5] Risk Management - The article identifies longevity risk, the risk of outliving one's money, and investment risk, the risk of losing investment value, as key concerns for retirees [6][7] - It suggests allocating a portion of the portfolio to equities to combat longevity risk while also including fixed-income investments for stability [8][9] Investment Vehicles - Pooled investment vehicles like mutual funds and exchange-traded funds (ETFs) are recommended for diversifying investments and managing risk [10][11] - Index funds are highlighted as a low-cost option for gaining exposure to large segments of financial markets, while active funds may offer the potential for higher returns at a higher cost [11] Personalization of Strategy - The article concludes that there is no one-size-fits-all approach to investing for capital preservation and cost minimization, and the optimal strategy will depend on individual circumstances and goals [12]

Core Insights - The US retirement system is failing to provide security for the majority of savers, leading to financial fragility among retirees [1] - A significant 64% of savers fear running out of money, indicating a lack of safety margin that could lead to financial ruin during market downturns [2] Annuities as a Solution - Annuities are designed to transfer longevity risk by providing a guaranteed lifetime income stream, potentially increasing the perceived value of a retiree's nest egg [3] - By integrating annuities, a retiree with a $1 million nest egg can feel as if they have $1.5 million available for spending [3] Common Mistakes Among Retirees - The fear of running out of money leads to underspending, causing retirees to sacrifice their quality of life [4][5] - Many retirees do not purchase annuities early enough, missing out on tax deferral benefits that can be advantageous over decades [6] Changing Perceptions of Annuities - The perception of annuities as complex products is being challenged, with modern options simplifying the process for younger savers [7]

Core Insights - The S&P 500 has historically averaged about 10.5% annual returns, but investing entirely in it carries significant risks due to market volatility and concentration in a few stocks [5][8][9] - Young investors are encouraged to stay invested through market cycles, leveraging dollar-cost averaging to mitigate volatility [2][3] - Diversification is essential to manage risk, especially as investors approach retirement, where sequence of returns risk becomes a critical concern [11][13][14] Group 1: Market Performance and Risks - The S&P 500 has experienced multiple periods of severe decline, including a 47% drop from 2000 to 2002 and a 50% drop during the Global Financial Crisis of 2008 [10][12] - Recent trends show that 10 stocks account for over 30% of the S&P 500's overall weight, indicating a concentration risk that can impact overall index performance [8][9] - The U.S. represents about half of the world's total investable market, which raises concerns about over-reliance on U.S. companies for long-term growth [9] Group 2: Investment Strategies - Regular contributions to a 401(k) facilitate dollar-cost averaging, allowing investors to buy more shares when prices are low and fewer when prices are high [2] - A balanced investment strategy should include a mix of asset classes to manage volatility and provide stability, especially as retirement approaches [11][20] - The emotional aspect of investing can lead to poor decision-making during market downturns, emphasizing the need for a disciplined approach [15][16] Group 3: Retirement Considerations - Sequence of returns risk can significantly affect retirees, particularly if market downturns coincide with withdrawals from investment portfolios [13][14] - Maintaining liquidity and diversification in retirement is crucial to allow for recovery and continued compounding of investments [15][17] - A well-structured investment plan should align with an individual's time horizon and financial goals, balancing growth and protection [20][21]

Group 1 - The article emphasizes the importance of annuities as a stable and predictable investment option for retirement savings, contrasting them with more glamorous investment choices [1][2][3] - Annuities are often misunderstood due to their complexity and perceived high costs, which can intimidate potential investors [4][5] - The structure of annuities allows for lifetime income, addressing the critical need for stable income during retirement and eliminating longevity risk [6][7] Group 2 - Annuities can provide protection of principal, investment returns, or income payouts, making them a valuable addition to an investment portfolio when properly understood [5] - The potential for annuities to offer floor and capped returns linked to market indices, such as the S&P 500, provides a safety net against market losses while allowing for growth [7]

Core Insights - The average retirement duration is increasing, yet many baby boomers are not adequately planning for long retirements, with 57% intending to retire between ages 60 and 69 and 46% expecting to live to age 90 or older, but only 9% planning for a retirement lasting over 30 years [1][2] Group 1: Retirement Planning - Failing to prepare for a long retirement is identified as a common mistake among baby boomers, which could lead to financial difficulties [2][5] - The risk of running out of money in retirement is significant if longevity is not considered in financial planning [3][4] - Many Americans lack a basic understanding of longevity, which contributes to insufficient savings for retirement [5][6] Group 2: Longevity Risk - Longevity risk is one of the four major risks threatening retirement security and can be mitigated with proper planning [6] - The increase in life expectancy by 17 years since the introduction of Social Security necessitates strategies that ensure retirement income lasts as long as individuals do [8]

Core Insights - Retirement planning is essential not only for ensuring sufficient funds for leisure activities but also for mitigating financial risks post-retirement [1][2] Group 1: Financial Risks in Retirement - Longevity risk is a significant concern, as retirees may outlive their savings due to various factors [4] - Sequence-of-returns risk can severely impact retirement savings if a market downturn occurs early in retirement [5] - Inflation, rising healthcare costs, and the IRMAA surcharge can further strain financial resources, with human behavior also posing risks through panic selling or chasing trends [5] Group 2: Strategies for Retirement Planning - A recommended approach is to engineer cash flow first and optimize returns second, ensuring a stable income that retirees cannot outlive [6] - Maintaining 12 to 24 months of essential expenses in cash can prevent forced selling during market dips [6] - Focusing on steady income allows retirees to balance safety and growth, enabling them to pursue higher-risk investments when their cash flow is secure [6][7]

Group 1 - The concept of a 100-year life plan is gaining traction as advancements in healthcare make living to 100 more feasible, highlighting the importance of financial planning for longevity [1][2] - Financial well-being is a central focus of the 100-year life plan, emphasizing the need for a longevity portfolio that ensures financial resilience and flexibility [2][4] - Longevity risk, the risk of outliving savings, is becoming a significant concern for many individuals, particularly in states like Florida and Texas, where clients are advised to consider guaranteed income sources [4][5] Group 2 - A 65-year-old today has a one-in-three chance of living past 90 and a one-in-seven chance of surpassing 95, indicating that longevity risk is a statistical certainty for many [5] - Without guaranteed income sources, retirement portfolios may face longevity drag, leading to the gradual depletion of assets over an extended lifespan [5][6] - Certain annuities, such as single-premium immediate annuities (SPIAs) and deferred income annuities (DIAs), can provide steady income and protect against market volatility, making them valuable components of a longevity portfolio [6][7]

Core Insights - Retirement for many Americans is about achieving a comfortable middle-class lifestyle, with a target passive income of $12,000 per month or $144,000 per year to cover expenses and enjoy luxuries [1] - Achieving this level of retirement income requires not only a substantial nest egg but also resilience against inflation, market fluctuations, and longevity risk [2] Financial Requirements - The "magic number" for retirement savings in 2025 is projected to be $1.26 million, which translates to an annual retirement income of approximately $50,400 or $4,200 per month, closely aligning with the median retirement income of $54,710 for Americans over 65 [3] - To achieve a retirement income of $12,000 per month, an individual would need around $3.6 million in retirement savings, which is nearly three times the average retiree's income [4] Inflation and Longevity Risk - Even a modest inflation rate of 2% can significantly erode purchasing power over time, necessitating an increase in retirement income to about $214,000 per year by age 82 to maintain the same standard of living as $144,000 in the first year of retirement [5] - Investment strategies play a crucial role in managing inflation and longevity risk; relying on low-risk assets like bonds may require savings well over $3.6 million to keep pace with inflation [6]