A 30-Year Retirement – Tips for Managing Cash Flow
When I think of a 30-year retirement for myself, I find it completely overwhelming. It is a long time horizon and somedays I can barely plan for tomorrow, let alone 30 years into the future. However, when it comes to discussing retirement planning with clients, I thoroughly enjoy helping them see all of the possibilities. For some, retirement is stepping into the unknown. And for others, it’s doing something that they may have waited their whole life to do. The reality is people are living longer and, we have more centenarians than ever. A common practice for a CERTIFIED FINANCIAL PLANNER™, such as myself, is to conduct a cash flow analysis, which we typically extend through the age of 95. Planning for the future ensures we have the money, vision, and tools to make the best of our later years.
I find it helpful to break down a 30-year retirement into three smaller, but distinct periods based on age groups, acknowledging that cash needs may be different during each period. These three periods/age groups are:
- Go-Go Years (60-74). Generally, this age span reflects the many positive aspects of retirement and is considered the “golden years” of adulthood. When compared to those who are older, the young-old experience relatively good health and social engagement.
- Slow-Go Years (75-84). Adults in this age period are likely to be living independently, but often experience physical impairments since chronic diseases increase after age 75.
- No-Go Years (85-99). Among the older adult population, this age group often includes people who have more serious chronic ailments. Those 85 and older are more likely to require long-term care and to be in nursing homes than the youngest-old.
The go-go period may truly be the time to try new things, travel, and spend more time with family and friends. Many people develop new hobbies, take more exotic trips, and participate in more social activities. While it is wonderful to truly enjoy these early years of retirement, it’s important to budget for these items and plan accordingly, so you don’t run out of money in your later years. For instance, seeing how a yearly trip of $10,000 will affect your cash flow is important so you can enjoy yourself without worrying that your money will run out too soon.
In the slow-go period, you may not travel as much or may start to slow down. For some, it may be a time to downsize if you are still living in a house. If you are living independently, you may need additional assistance, whether for food shopping, doctor visits, or attending social activities. These additional expenses need to be factored into your cash flow so you can develop a solid withdrawal strategy. Also in this period, you may want to think about future living arrangements so you can make those decisions vs. someone else making them for you. Some independent living and continuing care retirement communities (CCRC) may require a deposit or there could be a waiting list, so it is important to plan ahead. Your financial needs and cash flow may change during this period. You may spend less on traveling and more on conveniences such as grocery delivery, ride services or healthcare needs.
The no-go period is when retirees are more likely to find their health declining. This may require more care either with a home aide or nurse. If you haven’t planned for long-term care expenses by now, it is likely that you will have to pay for out-of-pocket costs not covered by Medicare or private insurance.
Thanks to medical advances and technology, people are living longer. The longer you live, the more money you will need to live comfortably in retirement. Cash flow analysis is an important part of financial planning as it can provide the information you need to feel secure about your future. Think of retirement as a 30-year horizon. Breaking it down into three distinct periods will help you plan more accurately for your needs and desires in each of these three time horizons. As Benjamin Franklin said, “If you fail to plan, you plan to fail.” Make sure you are ready for a 30-year retirement so you can continue to live your best life.
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