“I don’t want to live a day past 80.”
“Put me out to pasture if I get that old.”
These are comments I get on a regular basis when I tell the people across the table from me that I based their financial plan on living until 95. If they have longevity in the family, I discuss moving that to 100.
We initially plan on age 95 for a few reasons:
1. You don’t want to run out of money
2. You don’t want to run out of money
And
3. You don’t want to run out of money
In all seriousness, one of Americans’ most prevalent fears is outliving their financial resources. I’ve said it before, more people are afraid of dying broke than death itself. There are also statistical reasons we plan on 95 – 100.
Looking at this chart, you can see that as a woman, there is a 10% chance that I will be alive at 100. Even more compelling is the 40% chance that either me or William will make it to 95!
Having a portfolio sustain you until age 100 is a big ask. If you retire at 60, that is 40 years of withdrawals!!
So, here is how to build a portfolio that will meet your needs until you are 100 years old:
1. Save, Save, Save
As my rule of thumb, you should be saving 15-20% of your income (you can include your employer match in that amount). I know, that is a BIG ask. You can work your way there though.
If cash flow is tight, start at 5%. Every few months, or whenever able, bump your contributions up 1%. You may not feel the pinch in your budget if you slowly increase your savings.
Another great tip is Sharing Your Raise. For example, your performance review comes up and you get a 4% raise. Great news! Now what do you do? You immediately increase your contribution by 2%. You are then free to use the other 2% as you wish.
2. Have a Plan
I recently had someone ask me, should I just keep saving as much as possible? To what end? I don’t want to save all this extra money that I could be enjoying with my family now.
Yes, there is a such thing as over saving. You need to know what it will take to finance the retirement years… the travel, the healthcare, all of it.
How do you continue building your legacy, ensure it stays intact, and be overall financially positioned to live your best life NOW AND in retirement? You probably need to talk to a professional.
Read The Big Question: When Can You Retire to get a ballpark idea of how much you need in your portfolio.
3. Keep Your Lifestyle in Check
In my opinion, the single most damaging problem in a financial plan is overspending. Temporarily lethargic portfolio returns scare me MUCH less than a client who is spending twice what we initially planned on.
Oops I bought a boat I never told you about. Oops my boat needed a trailer. Oops I needed a new truck to pull that trailer… Oops I bought a cottage to keep my boat at. Don’t worry though. All these material items will satisfy me, and I will suddenly stop spending.
Events like this make me shake in my boots. SPENDING MONEY IS OK! But it needs to be planned for in advance.
Another reason I like the Sharing Your Raise principle is that it lowers the pace at which you raise your budget. If you are only increasing your spending by 2% a year instead of 4%, the lifestyle you are accustomed to living becomes much more manageable in retirement.
4. Give It Time
I have a bad habit of checking my portfolio frequently. Am I rich yet?? Will this grow to fulfill all my wildest dreams??? Do I have enough money saved up to sleep in tomorrow and not come to work? (Sorry Tony and Adam).
I can be impatient. Maybe you can be too.
Compounding growth on investments is powerful, but it happens over years… not days.
5. Get a Diversified Portfolio
The compounding won’t magically happen though. You need a diversified investment strategy that is carefully developed in consideration of your risk tolerance. Want an in-depth explanation of what it means to diversify? Read Research Analyst, Austin Wilson’s explanation HERE. It should be able to help.
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When you are 100 years old, I want you to relax and tell old stories to your great great grandkids about the origination of Netflix and the iPhone without having any financial concerns. Plan and prepare now!
