As the retirement concept has changed, Thornburg Investments created an informational packet for advisors to help clients reshape their retirement expectations.
Instead of looking at retirement as a single event, the packet focuses on the longevity aspect of retirement, with resources to help plan for health and longer life spans, longevity-oriented portfolios and sustainable spending.
Longevity-oriented portfolios are different from a target-date approach, according to Jan Holman, director of advisor education at Thornburg and author of the packet.
“There are a lot of pistons working at the same time: generating income, working with investments that you believe have the potential to increase income over time and potentially appreciate in price,” she told ThinkAdvisor on Tuesday.
Thornburg recommends investors maintain a cash flow reserve account that can cover two years’ worth of expenses and an investment portfolio that is approximately 25% fixed income investments and 65% equities, Holman said. “Between the cash flow, the fixed income and equity, you have 100%. The money funnels from the longer-term investments into the cash flow reserve and that account would give the client a check each month.”
That mix of investments works with investors of any age, Holman said. “In a short-term, highly liquid investment, you have two years’ worth of expenses, so you’re taking out of the equation the potential of needing to sell equity investments during a tough market environment,” she explained. “That’s really the most significant consideration for why people want to lighten up on equities. And I’m not talking about growth, growth, growth stuff; I’m talking about dividend-paying, high-quality global stocks. Two years in the short-term, highly liquid account gives a person a buffer, so they’re not having to liquidate in the middle of a downturn.”
Another important aspect of longevity planning is, of course, health. Unfortunately, it’s a topic that has usually been an afterthought when it comes to planning for retirement.
“Many folks in the industry focus on the investment stuff. More and more people are starting to talk about long-term care and that type of stuff, but the investment part doesn’t really matter if a person doesn’t pay attention to their health,” she said.
She described a situation her uncle experienced: “If you ask someone who’s got a lot of money and they’re sick, how has that wealth helped them, they’ll say it doesn’t really matter without health. Because we’ve been so obsessed with and focused on the numbers and the retirement date and all that, we haven’t taken into consideration, many of us, the fact that we need to be managing our own health.”
Holman referred to research from the Stanford Institute on Longevity that identified the “big three” health problems Americans will face as dementia and Alzheimer’s, arthritis and obesity. “We’re already dealing with them now, but they’re just going to keep on exploding,” Holman said. “Do we have as individuals some control, or can we influence whether or not we get one of those diseases? I believe on obesity, yes we can, but it has to be very conscious. Somebody has to decide, ‘OK, I’ve accumulated this wealth. Now if I’m 100 pounds overweight a lot of this money might go toward things that have to deal with me trying to ward off the effects of obesity.’”