Beyond the headlines: Planning for a successful retirement

Retirement is back in the headlines. And the topics are hard to scroll past: concerns about Social Security, the far-ranging effects of inflation, changing spending patterns, advances in medical technology and increasing lifespans. Taken together, these headlines underscore something we see every day in our practice: The most secure and fulfilling retirements are built on flexible, proactive planning — not reactive responses to the latest news events.

Successful retirements are also built on critical foundations that go far beyond sufficiency analyses. This is especially true for high-net-worth investors who may have accumulated ample assets and are looking to secure a legacy while appreciating this later phase in their lives. They must make decisions about health insurance, taxes and investments alongside considerations such as appreciating an abundance of time, finding purpose and fulfillment, and maintaining health. A strategic approach will help you understand these complexities and find the best path forward. Such an approach is also beneficial when applied to the planning topics we’ll address in this piece: extended lifespans; the psychological and financial realities of decumulation; and the timing of Social Security claims.

Living to 100: The new reality?

With advances in pharmaceuticals and medicine, a better understanding of the aging process and the prioritization of healthier lifestyles, many retirees may soon be entering a reality in which living to 100 becomes the norm.

These additional years of life introduce financial considerations, including the resources required to enjoy those extra years and the erosion of purchasing power over a long period of time. Healthcare costs deserve particular attention: The average married couple spends $300,000 on healthcare in retirement; the average individual, $172,500.¹ It is important to note that for some time now, the rising costs of healthcare and long-term care have outpaced standard inflation. The resources needed to fund these expenses are frequently underappreciated, especially in scenarios in which life expectancy is extended.

Where there is risk, there is also opportunity and a longer lifespan can present meaningful planning opportunities: With a longer time horizon comes the ability to leverage strategies that benefit from time, such as delaying Social Security, converting pre-tax assets to a Roth or maintaining equity exposure.

Ultimately, longevity risk makes it even more important for you to regularly review and stress-test your plan.

Decumulation: Financially and psychologically, it’s the big U-turn

Headlines often reduce retirement spending to a single number or a simple percentage rule, but finding the optimal process for drawing down a portfolio is a tricky challenge. After all, investors spend decades growing their investments and balance sheets. Reversing course can induce significant anxiety.

The reality is that retirement spending is dynamic and personal. In fact, retirement spending patterns tend to shift significantly and are heavily influenced by age and health. During the early years of retirement, spending tends to be at its highest, as retirees enjoy additional travel and entertainment. As retirement progresses, priorities change and retirees spend more time at home or within their communities. In the later years of retirement, spending tends to rise with an increase in health events, as well as gifts to family or charities. Healthier individuals may see only minor fluctuations, while for others, the final years of retirement may be the most expensive.

A thoughtful decumulation strategy inventories spending needs, subtracts non-portfolio income to set a withdrawal target, and optimizes sequencing across taxable, tax-deferred and tax-free accounts. From there, retirees generally choose among three cash flow strategies, each of which strikes a unique balance between principal preservation, flexibility and growth.

• Income-focused: Some retirees prefer a portfolio focused on generating income, using that income to meet spending goals. It is important to remember that stretching for yield can jeopardize growth and introduce additional risk.
• Sweep-and-top-up: This approach directs dividends and income to cash as they are received, periodically drawing down principal when necessary.
• Total return: This strategy reinvests any dividends back into the portfolio, with distributions made only as needed. This allows retirees to remain fully invested for longer, and to emphasize growth over income.

Your decumulation strategy should reflect your unique spending needs, tax situation and long-term goals. Throughout, it’s important to regularly review and adapt your spending plans.

Social Security: The underappreciated asset in a high-net-worth retirement plan

While Social Security payments may not seem significant to those with large balance sheets, the program offers a government-backed, inflation-adjusted, lifelong income stream that is hard to replicate. A high-earning married couple eligible for $122,232 per year at age 70 would need roughly $2.84 million in bonds at 4.30% to match that income — and Social Security delivers it without capital outlay.

High-net-worth individuals have the flexibility to delay claiming Social Security benefits beyond full retirement age, yielding an 8% annual increase that compounds with inflation and enhances survivor benefits. By carefully considering when to claim benefits, retirees can maximize their lifetime payouts. For married couples, the best strategy is typically for the higher-earning spouse to delay claiming as long as possible, while the lower-earning spouse starts benefits early. This approach maximizes lifetime benefits unless both spouses live well into their 90s.

While headlines about Old-Age and Survivors Insurance Trust Fund depletion by 2033 can be alarming, most Social Security benefits are funded by ongoing payroll taxes and would largely continue even in a worst-case scenario. The bottom line is that Social Security remains a resilient and valuable component of any well-prepared plan.

How J.P. Morgan can help

The headlines are real — retirement spending is shifting, lifespans are extending and the future of Social Security is being debated. But for investors with the resources and flexibility to plan proactively, these trends are not just risks but also are opportunities for strategic planning. The key is a flexible, personalized strategy that evolves with your life, your assets and your preferences.

For more on these topics — including strategies for decumulation, longevity planning and Social Security optimization — reach out to your J.P. Morgan team to learn about our new three-part flagship piece, The Well-Prepared Retiree. As always, your J.P. Morgan team is here to help you turn these insights into action.