As a Retirement Planner, I eagerly await the release of J.P. Morgan’s Guide to Retirement. It is essentially a booklet of slides filled with a ton of great information impacting retirees. Making it even better, it often highlights things that are regularly overlooked by just about anyone (including professionals) planning for retirement today. With that in mind, I’ve selected 10 charts that I think everyone transitioning into retirement should see with a little commentary on each. Every chart comes directly from their guide and credit for each chart’s information is provided within the guide itself.
1. Life Expectancy Probabilities
When asked how long they’ll live, many retirees will respond late 70s or early 80s. Not all that surprising considering the average life expectancy for the average man and woman is 83 and 85 respectively. However, that ignores the average joint life expectancy of approximately 90 years old for 48% of the population and the 20% that live to age 95.
But what makes their estimates even less likely to be accurate is that we must remember these are averages! And I’ll bet that average person reading this site is not average. You’ve likely made above average income, had above average healthcare, lived a less physically demanding life and concurrently eaten a healthier overall diet. If that’s true, then you are likely to be on the high side of all of the above estimates. That being the case, imagine what your portfolio will need to do to maintain your standard of living over a 25 or 30 plus year retirement.
Related reading: Retirees Underestimate the Impact of Longevity & Inflation
2. Older Americans Are Working Longer
While there are plenty of people that can’t wait to retire, I’m finding more and more people want to keep working. I’ve said before that I have a few clients that have been telling me they are going to retire in “a year or two” for close to a decade. According to the data, much of this desire to keep working has to do with wanting to stay active and involved and the simple fact that they enjoy working. I’m certainly seeing this play out regularly within my own client base and it appears to be a trend that will continue.
3. Though Not Everyone Can Keep Working
Despite the fact that 69% of workers anticipate retiring at age 65 or older, many are not able to for a variety of reasons. 41% attribute retiring earlier than planned to health problems and another 26% to changes at their company. This is why it is probably wise to be prepared financially speaking for retirement earlier than anticipated. That’s easier said than done I know.
4. Maximizing Social Security – Median Earner
When comparing Social Security claiming strategies, the chart above shows:
The median Social Security recipient would breakeven around age 76 if they chose to delay claiming until Full Retirement Age versus claiming at age 62. And they would breakeven around age 80 if they chose to delay claiming until age 70 versus Full Retirement Age.
As an FYI, the breakeven age from claiming at age 70 versus claiming at age 62 is approximately 83 years old – not bad when you consider the average joint life expectancy age is almost 90 years old.
Related reading: Should You Wait Until 70 For Social Security?
5. Income Replacement Needs in Retirement
This might be a helpful visual for people planning for retirement and wondering about spending. I do take issue with one small piece of it though with regard to the average
Given that the typical retirement week consists of six Saturdays and a Sunday, I don’t anticipate too many people (primarily those of higher net worth) having a noticeable decrease in spending especially in the early years of retirement – if anything they may increase spending.
That said, I still think the replacement rate of 74% could still be accurate given that I would anticipate many people reading this site have above average savings rates which would increase the top-line number they call “Less pre-retirement savings.” If you are saving 20%, 30% or more of your income as many of my clients are, a 74% replacement rate may be pretty accurate if not more than enough.
6. Health Savings Account (HSA) Savings Are Triple Tax Advantaged
I plan to write a post about this in the near future, but the sheer value of a Health Savings Account from a tax perspective cannot be overstated. There are three primary tax benefits from investing in an HSA:
- Immediate reduction to taxable income (pay
- Tax-deferred growth on your investment.
- Tax-free withdrawals if used for qualified healthcare expenses.
If you are participating in a High Deductible Health Plan, given that you could receive the trifecta of tax benefits, fully funding your HSA is a no-brainer if you’re financially able to do so. I’ll expand more on this in a future article so be sure to subscribe at the bottom of this post.
7. Average Household Spending Patterns By Various Age Groups
Even as people transition into retirement and continue to age, it’s not all that surprising that they are, over time, seeing a decrease in expenses across a broad range of categories. This is a good example of why spending slightly more in the beginning of retirement isn’t necessarily a bad idea since you are likely to pare down spending over time.
8. The 4% Rule Sure Seems To Be Spot On Even After All These Years
This is my favorite visual from the entirety of the Guide to Retirement. The transition point for sustainable income appears to be right at the 4% withdrawal rate over a 30 year period almost regardless of allocation. Beyond 4%, the retirement waters look a little choppy to me.
That said, there could be an argument for withdrawing a little more in the early years and paring down later. Or an alternative strategy below…
9. Dynamic Spending Can Help Your Money Last Longer
Here are the assumptions for the chart as written on their slide:
Retire at age 65 with $1,000,000 and withdraw 5.2% of the initial portfolio value ($52,000). “Withdrawal annually increased each year by inflation” assumes 3% inflation rate. Dynamic withdrawal scenario assumes that if the annual rate of return on
portfoliois: 1) less than 3%, withdrawal remains the same as the prior year. 2) between 3% and 15%, withdrawal is increased by inflation (3%). 3) greater than 15%, withdrawal is increased by 4%. While the dynamic withdrawal scenario during this historical period provided 14% more total spending in today’s dollars, it is for illustrative purposes only and may not be successful during other time periods.
As the data shows, altering spending patterns based on a rules-based market performance approach extended the portfolio’s life by over five years. I really don’t have much to add to their assumptions besides saying that I advocate for a rules-based approach as well and find this strategy compelling. That said, there is a litany of strategies that are viable options to get you through retirement. But just like most everything else with portfolio management, finding a strategy that you can stick with is likely to lead to the best personal results.
10. The Probability of Needing Long Term Care
The probability of needing care is extremely high at 69% as indicated in the top chart. But the duration of care needed for about 50% of people is less than 90 days. However, in every length of care required beyond 90 days, women are the likely candidate with almost 1 in 5 women needing care for more than five years which is just staggering to me. It might go without saying, but having a plan to deal with these possibilities is critical.
Related reading: How to Pay for Long-Term Care
If these charts have you interested, I’d encourage you to check out the entire J.P. Morgan Guide to Retirement 2019. Making it an even stronger source of retirement information, every chart has the location for the source data, so if you really want to dig in, you can. Enjoy.
Thanks for reading!
If you’re looking for a retirement planner to help you make a comfortable transition into retirement and want to see if we’re a good fit, reach out to me here.
Disclaimers: Any opinions are those of Ashby Daniels and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.
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I am a Financial Advisor in Pittsburgh and a CERTIFIED FINANCIAL PLANNER™ professional with Shorebridge Wealth Management. I enjoy helping clients and readers find sensible answers to retirement’s big questions. If I can answer any questions for you, feel free to Contact Me or if you think you might be a fit for our practice, see Who We Serve.