Why Should I Stay Invested in the Markets After I Retire?

Last Updated: February 16, 2024

_____

You’ve entered the 2nd act of your life – retirement. Gone are all those years of hard work, discipline, planning, playing by the rules, investing, et. cetera.

You are retired and it’s time for some relaxing and living life on your own terms. You’ve earned it!

But…

The damnable “but”… hate those things!

Yes, you’ve probably earned the right to simply ride off into your own sunset and enjoy the rest of your life, but there are still practical issues that you’ll have to deal with as you do so.

Fact is that living out a successful retirement necessarily requires that you continue to approach life in an organized and well-planned manner. Failing to do so can actually imperil your retirement.

Translated – you will have to be especially disciplined when it comes to spending down your assets in an organized manner. And just as importantly, seek growth in your retirement portfolio to ensure there’s enough to accomplish your goals and satisfy your needs.

While you thought the investment side might be behind you and you could ride out the rest of your life on savings and perhaps some interest and dividend income, if you’re like most you are going to need to continue to remain in the markets.

That may not be what you want to hear, but for most it is true.

Today we will look at some of the reasons you might have to remain invested in the markets after you retire, and how you can do so without over exposing yourself to risk. And in a manner that allows you to maintain peace of mind.

A longer retirement than you may be expecting

Here is a tough reality – you could live 20 to 30 years longer (or more) than expected.

Hmmm. You may be scratching your head and wondering if that’s a good thing or a bad thing.

Well, when most people think of longevity when they’re young they tend to feel invincible and view themselves living forever. It’s actually an empowering feeling at that time.

So living longer than expected is a good thing. Right?

Chances are you view things a bit differently nowadays. In thinking about retirement you probably want to live as long as you are comfortable and enjoying quality of life, but likely not much beyond that point. Probably a safe bet you don’t want to be living for years on end into your 90s (or beyond), bedridden and with no quality of life.

Truth is that advances in medicine, healthcare, lifestyle, our diets and more are good things, but an unintended consequence is the fact that as a result you may have to pay your bills for a longer period of time. Your retirement savings may potentially have to last decades. Are you financially set for that?

If you happen to retire early that can easily equate to even more years in retirement. For perspective, consider that if you retire at 55 you have at least a decent chance of living into your 90s, so you better consider living up to 40 years in retirement.

Regarding the statistics, the Center for Disease Control and Prevention (CDC) reports that life expectancy declined for Americans recently, to 76.1 in 2021 from 77 in 2020. For females, the average life expectancy in the U.S. as of 2021 is 79.1 years, while that of males is 73.2.

It’s important to keep in mind that the CDC figure is based on life expectancy for all ages, dating from birth. This includes deaths that are attributable to issues ranging from infant mortality, medical conditions and disease to homicides, suicides, accidents of all sorts, overdoses, and more.

The Society of Actuaries actually estimates that a third of men and half of women who have already lived into their mid-50s will go on to live into their 90s. They also estimate that at least one member of a married couple that has reached age 65 will go on to live to age 92.

Think about it. If you’re 60 now you could easily be looking at another two to three decades, or more, that you live. This introduces longevity risk and the very real possibility that you could outlive your assets unless your retirement plan accounts for the potential of such a scenario.

Bottom line is that you can’t know how long you will live, but what is a sure bet is the fact you’ll need more money to survive and enjoy the retirement you envision for yourself the longer you live.

Long-term care needs

Another area where you’re likely to need more than you may be planning involves that of your healthcare needs later in your life. Long-term care is an area in which many people tend to make one of their biggest mistakes in retirement.

Think you won’t be one of those who needs LTC? According to the Kaiser Family Foundation or KFF, 70-percent of people aged 65 and older will require LTC at some point.

This can range from home health care to living in a facility of some type, such as assisted-living, traditional nursing home, skilled nursing  (much like the level of care in a hospital), and end-of-life hospice.

And yes, this is all pretty expensive. The primary mechanism for funding long-term care is through the purchase of LTC insurance. Alternatively there’s paying for it yourself.

The American Association for Long-Term Care Insurance (AALTCI) estimates that a 55-year-old male will pay an annual premium of $950 for a $165,000 level-health policy. The same policy for a female will cost an average of $1,500, and for a 55-year-old couple the combined cost is just over $2k annually.

If you wait to purchase any of those same policies until age 65, those costs nearly double. And they go up from there.

What if you don’t purchase LTC? The AALTCI estimates your annual out-of-pocket cost on long-term care could range from $20k to $100k, depending on the type of care needed. Ouch!

Failing to continue to grow your portfolio so there is more available in your later years can be a major problem, specifically when it comes to the issue of LTC. Fact is that failing to plan and pay for LTC coverage can devastate your saving and ruin your retirement plans, such as passing on assets and taking care of your family after you pass.

Taxes and inflation

Aside from the aforementioned issues, there are two other primary items you will have to deal with – taxes and inflation.

Taxes are a major issue in retirement, especially when it comes time when you are forced to take distributions from your qualified tax-deferred retirement savings accounts, such as IRAs and 401(k)s.

The required minimum distributions (RMDs) that start for many at age 72 (73 if you turn 72 after December 31, 2022, and age 75 in 2033), will take a chunk out of your savings. And they will continue and actually increase each year as you get older.

For perspective, depending on how much you’ve accumulated, those taxes could easily equate to tens to hundreds of thousands of dollars, and even much more.

There’s also the issue of inflation, which will continue each year as you get older without fail. Inflation erodes your buying power.

Even as inflation reverses course and declines toward a longer-term norm (Morningstar projects inflation between now and 2028 to decline to 1.8% annually, slightly lower than the Fed target rate of 2.0%), you still have to make more than that, combined with your yearly tax bill, to simply remain even. Earning anything less and you are losing money – each year.

Failing to capture some returns in your portfolio can put you on a glide path to running out of money over the long term. Clearly taxes and inflation are yet another set of reasons you will need to continue to grow your portfolio after you retire.

Fear-driven reaction

The idea of exiting the markets completely when you retire is often driven by a feeling of fear and/or simply wanting to be cautious. That is natural and understandable.

But as already demonstrated, retirement is not a zero-sum scenario. Unless you have substantial wealth and your main concern in retirement is preservation and passing it on, you will be spending down your assets and you’ll need to in some way counter that.

They key is doing so efficiently so that they last as long as possible. Not being able to generate additional savings during retirement can make that tougher to do. It puts your retirement at risk, despite the fact that your reason for stopping investing is probably driven by a desire to eliminate risk in that stage of your life.

A catch 22. Yikes!

Need for a good plan

Okay, so it’s probably clear you may need to maintain some exposure to the markets in order to drive growth in your portfolio.

Obviously, you will need to adjust from your accumulation and pre-retirement years and the overall approach to saving that worked in the past. Getting all the way out of the market may not work, nor would it be prudent to fail to properly address risk and continue to aggressively invest like you did in your 20s or 30s.

Instead, balance of some sort is probably the best approach. This will entail looking at your individual situation, goals, plans and needs, and determining what you will need over the long term.

From there a plan can be devised to best address your goals and meet your long-term retirement needs. The plan will address funding those things. Assets and proper allocation within your portfolio will necessarily need to be the first of a number of key component within such a plan.

The Oak Harvest Retirement Success Plan (RSP) is the mechanism and process we utilize for creating that holistic plan customized specifically for you and your unique situation. Learn more about the OHFG RPS here.

For sake of context, an example of not properly allocating would be a portfolio made up largely or entirely of bonds, CDs, high-yield dividends (while they can be great for current income needs, they often fail to deliver necessary capital appreciation to drive growth in a portfolio), et. cetera, but no equity market exposure.

In such a scenario there’s a good chance there would simply not be enough of a growth driver in the portfolio to keep you ahead of taxes, and even more so inflation over the long-term.

On the flipside, too much exposure to equities and other higher-risk instruments could leave you at serious risk in the event of market corrections.

Which brings us back to balance and proper allocation. A good plan and advisory team can help you stay invested in the market for the long term without increasing your exposure to risk, and at the same time providing you ample opportunity for growth in your portfolio, which you will probably need.

Lifetime income

Face it, your real fear, and that of most, is that of running out of money. As such, a major issue to think about is that of ensuring your assets last your lifetime.

When it comes to accomplishing that, there is a particular tool that can be well suited for your needs – an annuity.

No doubt you’ve heard some in the financial media and among advisors who will tell you to run when the word is muttered, but the fact is an annuity is nothing more than another financial instrument that can be a good tool in the right circumstances.

Just like stocks, bonds, mutual funds, et. cetera, when used correctly in a well-constructed portfolio they can address specific issues or goals, especially when it comes to retirement planning.

While they can be confusing to many, at its core an annuity is a form of financial contract between you and an insurance company. Your principal and many of the benefits built into the contract are guaranteed by the issuer.

One type of annuity that can bring you some of the benefits of market investment without the potential for downside risk is that of a Fixed Income Annuity or FIA.

They provide principal protection and growth potential. They may also contain additional benefit options, such as lifetime income for you and your spouse.

In terms of the potential upside in your return, an FIA is benchmarked to an index, such as the S&P 500, allowing you to capture a portion of the positive growth in the markets in any given year. On the flip side, it’s not invested directly in the market, and has built-in protection against market losses in down years.

An FIA can useful when you are seeking to drive some growth in your portfolio while addressing downside risk. Importantly, it can be used as part of a retirement plan to ensure you have an additional lifetime stream of income that you can’t outlive.

Conclusion

Now that you’re retired it’s natural to envision stepping away from all the things you did in disciplined fashion for years on end before retiring. You know, grinding away in your career, raising your family, paying for educations, saving, always making smart decisions…planning.

Who can blame you for wanting to put that stuff behind you. Simply relaxing and living out your life in peace while enjoying your golden years.

Well, the fact is that successful retirement requires you continue to approach life in an organized and well-planned manner. Well “planned” is the key.

In order to meet your needs, accomplish your goals and live out the life you envision in retirement, you will need a retirement plan that acts as a roadmap for you to follow in retirement.

And there’s a good chance that plan will need to contain a component for driving growth in your portfolio in a safe, prudent and risk appropriate manner over the long term. An Informed, properly allocated plan – not one that gambles with your future.

If you are currently following a plan (either your own or one created for you) our team at Oak Harvest would be happy to review it and determine if it can really meet your goals and do so in a risk-appropriate manner.

Or we can assist you by creating a retirement plan such as our RSP, which is capable of helping you do so. We can build a holistic, comprehensive retirement plan addressing relevant issues, utilizing strategies that cover taxes, income, spending, healthcare, legacy, and more, customized to your family’s specific needs.

A plan created with the goal of ensuring you can successfully live out the retirement you envision.

If you are ready to take the next step and talk to a team of retirement planners who can advise on all your retirement needs, and who will put your interests first, Schedule a call today!