In 1921, the average American could expect to live a little under 50 years. Today, life expectancy has increased by decades, but that’s just one part of the story. “Healthspans,” the period in life when people are healthy and active has increased by just as much, if not more. Many Americans are living into their eighties, nineties, and beyond. 

At Cooke Wealth Management, we focus on helping clients plan out their post-retirement lives. With healthspans increasing every year, this means additional years or even decades of active life to plan for. What do increased healthspans mean for your post-retirement wealth planning? Let’s take a look at a real CWM client experience. 

Go-go, slow-go, no-go: helping a California blended family plan out post-retirement travel

“What do you want to do when you retire?” “Well, we want to travel, that’s for sure!”

This pair of CWM clients were a husband and wife in Orange County. They had two independent, adult children. The husband was in senior management at a major public company and taught at a local college.  The wife worked part-time. Neither had retired yet. However, retirement was on the horizon, making it the optimal time to talk about financial planning. 

What do you want to do post-retirement? 

Almost every conversation we have about retirement starts with this question. Often, the biggest challenge is understanding what exactly post-retirement life, in terms of activities, lifestyle, and housing. Knowing what you want to do can help set realistic financial goals to empower you to actually do those things. 

This couple had clear targets in mind:

a.) They wanted to relocate to a new house outside Orange County 

b.) They wanted to spend their free time traveling. 

These two goals helped us set clear expectations in terms of wealth planning. The first step? Breaking down what “we want to travel” means. Factoring in increased, active healthspans, we structured out three phases for their travel: the initial “go-go” years, transitioning to “slow-go” years, then into “no go,” from their mid to late 80s onwards, when mobility could become a challenge. 

This three-stage approach helped us plan out the most active (and expensive) years first, before tapering off and focusing on other potential expenses like medical care. 

Relocating out of the county was their other goal. Because of the distance, it wouldn’t be viable for the husband to keep teaching once they made the move. To mitigate the financial impact, he decided to work extra hours at college right now to ensure they’d have the resources they need when it came time to retire. 

By understanding exactly what they wanted to do, we helped them build a balanced and sustainable plan for retirement, from additional work to investments, to maximizing lifetime social security benefits. 

Strategic planning means they have the ability to do the things they value over decades of retirement, with the security of having resources in hand. 

It’s evident from this success story that proper planning can help you strategize for a fulfilling and active retirement. But what about the challenges? Longer healthspans force us to reevaluate a number of problems including:

• Medical costs

• Changing lifestyle expectations 

• Inflation 

• Navigating financial cycles and black swan events 

Successfully managing medical costs

Medical costs have an interesting relationship with increased healthspans. On the one hand, a longer active life means not having to deal with major medical expenses like long-term care and skilled nursing from an earlier age. On the other hand, healthspans often increase in lockstep with his overall life expectancy. This means often that long term medical expenses aren’t avoided so much as delayed.

This means that medical costs remain a priority, even as healthspans increase. Because those costs now come into the picture 20-25 years after retiring instead of 10-15 years, they can be easily forgotten while planning out the more active parts of post-retirement living. We suggest that all clients first sign up for Medicare when initially eligible and then acquire an appropriate Medigap policy to help cover medical expenses during retirement.

Changing lifestyle expectations 

An increased healthspan means being active longer. Over the past few years, we’ve seen this having a tangible impact on the kind of expectations CWM clients have with respect to their lifestyle after retiring. 

Many clients want to work longer. As was the case with our Orange County college lecturer, this is an incredibly powerful source of retirement income. Working longer means accumulating more savings which, in turn, enables you to do more, whether that means traveling across the world, something spiritually empowering like mission work, or buying a new home. 

Most CWM clients today expect to have a longer active period after retiring. Steady returns from investments and added income from potentially extending their career length by 2-5 years, both can help fund lengthy (and active) lives after retiring. 

Inflation and financial cycles 

Because of inflation, one dollar in 1960 is worth roughly ten dollars today. What this means is that year after year, the actual value of your savings will deteriorate unless your investments and retirement income grow your savings more than inflation takes away. Increased healthspans make this even more of an issue: active living tends to be expensive: lifestyle costs will have a knock-on impact, on top of inflation: if you’re planning to keep traveling or pursuing a hobby twenty years down the road, your savings and income will need to exceed the inflation-adjusted cost of doing things, something that gets more expensive each year. 

Your investments will need to work for you to make this possible. In the long term, it becomes critical to factor in the cyclical nature of the economy and the impact of uncertain events like COVID. Economic growth cycles between periods of recession and growth. Diversifying your investments and keeping track of structural trends are key to staying one step ahead and enabling long-term investment growth. 

How to support your active lifestyle across a lengthening healthspan

Proverbs 21: 20: There is a treasure to be desired and oil in the dwelling of the wise, but a foolish man spendeth it up.

People aren’t just living longer: they’re staying healthy and active for longer. Today, when we help CWM clients plan out their retirement, we ask them to look at where they see themselves in their 70s, 80s, and beyond. What are some of the solutions that can help you support an active lifestyle that far out? Let’s take a look.

Conservative fiscal planning, today and tomorrow

As Proverbs 21: 20 tells us, the wise man saves and invests, instead of indiscriminately spending today. It’s clear what the Bible is saying here about financial planning: spend less than you earn to prepare for the future. 

At CWM, we advise controlled prudent expense planning, both before and during retirement. Before retiring, planning your spending and saving more than you earn will help make comfortable retirement more possible. But, as people’s healthspans continue to increase, it’s not enough to focus on pre-retirement expense planning. Longevity means you’ll need a plan that’s sustainable for many years to come. This doesn’t necessarily mean compromising on your retirement quality of life. 

The secret is to identify the “essence” of the life you want to live while winnowing out non-critical expenses that add up month to month without significantly improving your overall life. 

A prudent approach to investing your nest egg

Amid inflation, uncertainty, and retirement expenses, your nest egg needs to work for you, both during your working years and after retiring. 

During your working years, the main focus is on growing your retirement portfolio through consistent investment in line with your risk appetite. Afterward, though, the key lies in optimizing your withdrawal strategy, both to mitigate tax implications - when it comes to RMDs, for instance - and to have your money last as long as you do. CWM strives to help our clients plan and implement strategies for both these stages.