The State of Retirement Today
Planning for retirement is undoubtedly essential — and can quickly become complicated without the proper preparation. Michael Finke, professor and director of retirement planning at Texas Tech University, discussed the importance of longevity in retirement planning, the implications of cognitive decline, and the notion of an impending retirement crisis during a recent Take 15 conversation.
According to Finke, longevity is one of the key factors in retirement planning. “In retirement, we don’t have a definite time period,” Finke said. “During our working life — say if we have a 45-year-old client — we can plan perhaps on a 20-year time horizon for saving for retirement. But spending in retirement, we don’t have a definite time horizon.”
Finke also makes the point that different life cycles in retirement can complicate decisions. “We tend to change as we get older, especially when we hit advanced age,” he said. “We have different types of risks and different types of lifestyle issues when we hit later life.”
In terms of post-work satisfaction, Finke believes that money isn’t everything. “Up to about $3.5 million dollars of investable assets, money does make you happier. But after that point, actually it becomes a bit of a burden,” he said. “If you have more money than you’re ever realistically going to be able to spend in retirement, then essentially managing that money becomes an added burden that’s part of your retirement life cycle.”
As for the purported retirement crisis, Finke identifies two components. “There’s going to be a lot of people — especially in the middle class — who haven’t saved enough for retirement . . . but to me the biggest crisis is going to be later on in life because we haven’t figured out later life long-term care expenses,” he said. “In order to prevent that crisis we need to solve later life income and we need to solve later life health expenses.”
Michael Finke also presented some of the insights from his retirement-related research at the CFA Institute Wealth Management Conference 2015.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.