New Challenges for a Long Retirement

Episode 330 – The prospect of increased longevity should make all of us smile, but it creates issues that prior generations rarely had to face. Are you ready to deal with the consequences?

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Transcript of Podcast Episode 330

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, new challenges for a long retirement.

Are you a member of the “sandwich generation?” As life expectancy gradually increases, it’s becoming more common to see people reaching retirement age who also have a living parent also in retirement.[1] A member of the sandwich generation is someone who is supporting both a parent and a child, whether the child is under age 18 or an adult child.[2]

This is just one consequence of increased longevity, one that prior generations rarely had to deal with. And it could accelerate. Scientists have suggested that because of medical advances, in the not-so-distant future, we could start seeing three retired generations in a single family.[3] Even today, the chances of living to age 90 are relatively high. For a couple, aged 62, there is a 59 percent chance that at least one of them will live to age 90 or beyond.[4]

But there’s also reason for anxiety. A recent survey by Global Atlantic Financial Group indicates that a full 67 percent of people between the ages of 55 and 75 are concerned about outliving their assets.[5]

So how do you plan for a long retirement? You can start by looking closely at your Social Security. If you haven’t started yet, there are some decisions you’ll need to make. You can begin collecting as early as age 62 (age 60 if you’re a surviving spouse) or as late as age 70. The benefit goes a little bit up every month you wait between the two. The longer you live, the more it makes sense to wait.

Let’s say you want to retire at age 62 and you have a good life expectancy. If you start collecting Social Security at that age, your benefit will be reduced by 30 percent compared to if you had waited until age 67. For anyone born 1960 or later, ‘Full Retirement Age” is age 67. So if you wait until 67 you will get your full, unreduced benefit. And if you can hold out until age 70, you will get 24 percent more than you would have gotten at age 67.

Another thing you may want to do is to figure out a “decumulation” strategy, that is, a retirement withdrawal plan. You need to think carefully about your preferred lifestyle in retirement, and whether your assets are going to make it past age 90 under that scenario. According to a recent study by IRALOGIX, 49 percent of retirees are operating without a formal withdrawal strategy.[6] These people instead choose to just take what they need as they go. Only 22 percent have a systematic withdrawal process. Another 17 percent are fortunate enough that they can afford to live spending only dividends and interest.

One possible tool to use for planning a lengthy retirement is a series of Roth conversions during the early years of retirement. Unlike a traditional IRA, a Roth IRA does not have Required Minimum Distributions or RMDs. The big disadvantage to a Roth is that you don’t get a tax deduction going in. The big advantage is that while the account still grows tax-free, if you follow the rules, any money that does come out is tax-free.

Since you took a tax deduction when you contributed to your traditional IRA or 401(k), moving that money into a Roth is considered a taxable transaction. RMDs generally begin at age 72. But if you retire before that age, it could be a great time to start gradually converting to a Roth during those intervening years. If you’re in a lower tax bracket because you’re not working, it will be more tax efficient.

Another way to approach decumulation is to use a “bucket” method. This comes in several varieties, but one common version has been popularized by Christine Benz at Morningstar.[7] Under this concept, you set up your retirement savings in three different retirement “buckets.”

Bucket one would be invested in something liquid like a money market fund. This bucket would be for short-term cash needs, with maybe two or three years’ worth of expenses.[8]

Bucket two would be on the conservative side, with a combination of stocks, bonds and cash investments. Money in this bucket would be gradually shifted into bucket one as needed over time.[9]

Bucket three would be invested in assets with a high growth potential. This is the bucket that is going to have the most volatility and is going to require the bulk of your attention.[10] The hope is that by gradually shifting your assets from one bucket to the next, you’ll get a better sense of how long your assets are going to last, and whether you need to make some adjustments.

It truly is great news that so many of us are looking forward to a lengthy retirement, perhaps even longer than we originally expected. But it comes with a downside: it may end up straining your finances more than you currently realize. The best you can do is think about it ahead of time and be ready if you’re lucky enough to experience a long retirement.

[1] Reed, Jennifer Lea. “Retirements Lasting 60 Years? Possible, And Maybe Terrifying.” Financial Advisor Magazine. https://www.fa-mag.com/news/retirements-lasting-60-years–possible–and-terrifying-81544.html?section=43&utm_source=FA+Magazine&utm_campaign=5cb52eab4f-FAN_AM_CE+Credits_022825&utm_medium=email&utm_term=0_-02ce404ce3-244838627 (accessed April 8, 2025).

[2] Horowitz, Juliana Menasce. “More than half of Americans in their 40s are ‘sandwiched’ between an aging parent and their own children.” Pewresearch.org. https://www.pewresearch.org/short-reads/2022/04/08/more-than-half-of-americans-in-their-40s-are-sandwiched-between-an-aging-parent-and-their-own-children/ (accessed April 8, 2025).

[3] Reed, Jennifer Lea. “Retirements Lasting 60 Years? Possible, And Maybe Terrifying.” Financial Advisor Magazine. https://www.fa-mag.com/news/retirements-lasting-60-years–possible–and-terrifying-81544.html?section=43&utm_source=FA+Magazine&utm_campaign=5cb52eab4f-FAN_AM_CE+Credits_022825&utm_medium=email&utm_term=0_-02ce404ce3-244838627 (accessed April 8, 2025).

[4] Wohlner, Roger. “Living Past 90: How to Play the Long Game on Retirement, Tax Planning.” Think Advisor. https://www.thinkadvisor.com/2025/03/26/how-to-plan-for-clients-who-might-live-to-90-and-beyond/?recombee_recomm_id=dec3bbe9440a929183645028596b8bf4 (accessed April 8, 2025).

[5] Almazora, Leo. “Two-thirds of investors worried they’ll outlive their assets. Investmentnews.com. https://www.investmentnews.com/retirement-planning/two-thirds-of-investors-worried-theyll-outlive-their-assets/259916 (accessed April 8, 2025).

[6] Advisor News. “Nearly half of retirees lack a structured decumulation strategy.” Insurancenewsnet.com. https://insurancenewsnet.com/oarticle/nearly-half-of-retirees-lack-a-structured-decumulation-strategy (accessed April 9, 2025).

[7] Wohlner, Roger. “Living Past 90: How to Play the Long Game on Retirement, Tax Planning.” Think Advisor. https://www.thinkadvisor.com/2025/03/26/how-to-plan-for-clients-who-might-live-to-90-and-beyond/?recombee_recomm_id=dec3bbe9440a929183645028596b8bf4 (accessed April 9, 2025).

[8] Id.

[9] Id.

[10] Id.

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