“For example, older households purchase more healthcare but less transportation than households age 35 to 44, making them less vulnerable to the volatile energy category than younger households,” J.P. Morgan Asset Management said.
“It is difficult to predict how long a person might need paid long-term care, so it is hard for advisors to make plans,” said retirement strategist Sharon Carson. “But half of those who live to age 90 or more will need paid care.”
Advisors face a growing challenge with the continued disappearance of defined benefit plans, according to Kelly J. Hahn, executive director of J.P. Morgan Chase & Co. “Advisors need to work with younger clients to determine how to generate retirement income” that used to be provided by defined benefit pension plans, Hahn said.
The amount of income that needs to be replaced in retirement averages between 70% to 80%, but for lower income households it can be almost 100%, she said.
The guide outlines the savings rates needed at various life stages to provide a comfortable retirement. Spending needs do not remain steady over the length of retirement, declining as people age and become less active, but then going up again as healthcare costs increase, Carson said.
Another possible variable is when Roth IRAs, traditional IRAs and 401(k) plans are mixed for tax purposes in retirement years. Overreliance on tax-advantaged savings plans may not be wise if it puts too much of a tax burden on retirees, Carson said.
In addition, younger people should consider how much of their incomes Social Security will replace by the time they retire and how much Medicare costs may go up for higher-income individuals, she added.
Aligning retirement income and assets based on how they will be used to support an individual’s retirement lifestyle is one way to ensure a higher degree of confidence through retirement, J.P. Morgan Asset Management said. “Known as ‘guarantee the floor,’ our analysis shows how stable spending can be aligned with relatively safe or guaranteed funding sources, while variable spending can be covered by retirement income solutions and may require a cash reserve to be available through the year.”