A common fear among investors is that they will outlive their money—that they’ll spend as planned in retirement, live beyond their projected life expectancy, and eventually become a financial burden on their family.
When we run financial plans, we project spending so a couple’s funds last through the youngest spouse’s age 92 at a maximum spending level. Every year or two, we revisit their spending, anticipated expenses, and assumptions for growth, inflation, and taxes, allowing the plan to adapt as circumstances change. Once investors enter their 80s, we may extend that calculation through age 100 or longer.
For some investors, however, the concern swings in the other direction. Their plan shows that their assets may peak late in life. They’re simply spending less than their portfolio earns or struggling to break a lifetime habit of saving, even when their “income” is now a required minimum distribution.
At 65, you may fall into the high-net-worth category. However, if you run the cash flow projection out another 25 or 30 years, your portfolio could eventually reach very-high-net-worth territory. Perhaps you never intended to leave that much to your heirs. Children inheriting substantial wealth in their 50s or 60s may already have accumulated significant assets of their own, and inherited IRA rules can accelerate the tax consequences of receiving retirement assets.
When projections show significant excess wealth, the conversation changes. Do you want to leave a substantial inheritance, or put some of that wealth to work during your lifetime for family, charity, or yourself?
Adult children may not need the money, but grandchildren might benefit from receiving it earlier. $100,000 may not meaningfully change the outlook for someone approaching retirement with substantial assets. For someone in their 30s, it could help with a home purchase, education, or starting a business.
Charitable giving may become part of the conversation as well. A donor-advised fund, for example, can support organizations you care about while involving children or grandchildren in the family’s charitable legacy.
And then there is your own life.
For decades, investors are encouraged to work hard, save consistently and spend carefully. Retirement suddenly asks them to begin drawing down what they worked a lifetime to accumulate. That transition can be surprisingly difficult. Working another five years and saving more may provide additional security, but those years have value, too. A financial plan can help you understand what your cash flow may look like over the next 20 or 30 years and what level of spending your portfolio can reasonably support.
There is a balance. Retire too early or spend too aggressively, and you may place unnecessary strain on your portfolio. But when the numbers consistently show you can afford to retire, travel, or enjoy more of what you have accumulated, continuing to save out of habit has a cost as well.
Ultimately, the conversation becomes less about whether you can afford to spend and more about permitting yourself to use your money intentionally. The goal isn’t simply to die with the largest portfolio possible. It’s to make sure your money supports the life and legacy you intended.
If you have questions about how your assets may grow throughout retirement and what that could mean for your spending and legacy, the experts at Henssler Financial will be glad to help.
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Disclosure: This article is for demonstrative and academic purposes and is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products. |