Advisors should expect to plan for clients who live to 100 and spend about 35 years living in retirement, according to a new retirement guide issued by J.P. Morgan Asset Management.
That's an increase from last year, when the firm pegged the average retirement to last 30 years.
“Retirement investors and advisors are grappling with a range of challenging issues, from an evolving inflation picture, to an increase in forecasted spending needs in retirement, and ongoing questions around Social Security,” Katherine Roy, chief retirement strategist, said. “As planners, we want to be conservative so we tell advisors to plan for clients to live to 100 if they are in excellent health and nonsmokers.”
The wider timeline adds yet more variables to the much debated issue of how much money a person or couple needs for a comfortable retirement, according to the firm. A host of variables affect that answer, a panel of retirement experts from J.P. Morgan Asset Management said during a press briefing today.
Healthcare costs, inflation, withdrawal rates and Roth versus traditional IRAs are a few of the factors that can change each planning scenario, the panel explained.
The guide warns that “too few Americans have calculated what it will take to be able to retire at their current lifestyle. Retirement checkpoint calculations can help investors to quickly gauge whether they are ‘on track’ to afford their current lifestyle for 35 years in retirement based on their current age and annual household income.”
For instance, the traditional 4% withdrawal rule, based on a portfolio of $1 million, will last for a 30-year retirement, but will not be sufficient for a 35-year retirement, Roy said.
The guide advises, “Investing a portion of your portfolio for growth is important to maintain your purchasing power over time, particularly in an inflationary environment.”
“Runaway inflation and poor portfolio returns are the reasons most retirement plans fail,” Roy said.
The guide is based on a 2.3% inflation rate for 1982 through 2020, but notes that inflation soared to 7.1% last year. The guide warns advisors to keep inflation in perspective when planning for retirement, including planning for increases in the cost of healthcare and long-term care, while balancing other factors.