You may be 65 years old, but it's important to still think about growth for your portfolio. One of the things we often talk to our clients about is setting up the correct asset allocation for them. We want to ensure that the allocation takes into account their risk and return needs as well as their time horizon. The natural tendency for many of our clients is to want to get more conservative with their portfolios as they age. Oftentimes, people tend to get too conservative, hold too much in fixed income or cash, and not have enough growth for their life expectancy. We see this happen especially when our clients do not feel comfortable with the current market or political environment.
Social Security Administration, Period of Life Table, 2011 (published in 2015). J.P. Morgan Asset Management Guide to Retirement 2016
We like to remind our clients that even if they are 65 years old today, there is a high probability they will live past the age of 90. The Social Security Administration published data on life expectancies. For a couple at age 65, there is a 47% probability that at least one of them will live to be 90 years old or older. This is great insight, but the dilemma with these numbers is that they are misleading. For many of our clients, we find that they will tend to live past these actuarial numbers. Why? Income and net worth.
(April 11, 2016) New York Times: The Rich Live Longer Everywhere. For the Poor, Geography Matters.
The Journal of the American Medical Association completed its own study on longevity, which you can see in the graph above and can read further in the New York Times. The study shows that income and net worth can have a huge impact on life expectancy. To give you an extreme example, let’s say for men the top 1% of income earners can expect to live about 15 years longer than the bottom 1% of income earners. So, what does this mean for our clients? If a couple is age 65 today, they can expect a 47% chance or more for one spouse to live past age 90, which means they may need to plan for more growth in their portfolio. Simply holding cash and fixed income with a plan to deplete those assets over time may not be enough. Growth still makes sense, even at 65.
