Earlier this year I attended a conference in Florida on retirement income planning. As you might imagine, many of the presenters discussed the coming crisis for baby boomers as they enter the retirement years. They are facing the twin risks of not having saved enough plus standing a good chance of living into their 90s. One fact that was noted on several occasions was that a married couple in their mid-60s can expect at least one of the couple to be alive into their 90s. Clearly this kind of longevity can impact even the best planned retirement portfolio. All in all, it was a good conference and I learned a lot.
However, the real lesson of this conference was driven home to me when my wife and I went up to Walt Disney World in Orlando for a couple days after the conference. There I was astounded by the number of truly elderly people. However, they were not there as tourists, but as employees, or as they like to call them “cast members”.
Don’t get me wrong, some of the people there clearly seemed to enjoy interacting with the crowds and appeared to like their jobs. However a great many of the people I saw in the elderly ranks of employees – I’m sorry, cast members – did not appear to be having any fun at all. They were on their feet all day working in gift stores or in the cafeterias and from their body language they were basically saying this is not how I planned to spend my golden years.
How can we apply the lesson of these folks at Disney World to our own situation? The first thing that comes to mind is to be especially diligent about our savings and investing plans. The recent stock market troubles have caused many people to swear off stocks for good. On face value this seems like a prudent strategy but the reality is that over time it is not. We are currently in a historically low interest rate environment and the alternatives to stocks are not returning much of anything. In fact after inflation, these investments are yielding a negative return.
Given the reality of longevity, people in their 60s need to plan on their savings lasting another 30 years or so. To make that happen there needs to be at least some amount of stocks in your portfolio. Of course the exact allocation will depend on your risk tolerance but at minimum 20% should be invested in equities, and depending on your age, something north of that would be appropriate. Over time, equity investments have proven to be better hedges against inflation than fixed income investments such as bonds or bond mutual funds. Yes there is a risk that the price will move up and down at any given time, and, of course, past performance is no guarantee of future results, but to give you and your family the best chance for success you need to appreciate and manage the long-term timeframe that you’re dealing with.
Or you can plan on joining the cast in your golden years.