Retirement Characteristics

Many personal and external factors could adversely affect wealth and expenditure in retirement.

Let us examine some of the factors that characterize the retirement period, starting with personal factors first. About 85% of the population is retired before turning 65. Most people enter retirement with little opportunity to be able to renew their earning potential. The early retirement period, perhaps until early 70s for someone in good health, is the Go-Go phase when there is suddenly a deluge of available time for their favorite activities. As a result, their living expenses tend to go up, as compared, for example, to the benchmark numbers discussed in “Life of an Engineer: Cash Flow Analysis.”

When one is in their late 70s, things start to slowdown a bit because of natural decline in energy level, and they enter the Slow-Go phase. This is also the age range for average life expectancy in the United States. Health issues are not uncommon, while at the same time unknown longevity looms over the horizon. Please read our blog “Longevity Risk” for more information. People who live into their late 80s, even with good health, are less ambulatory. This No-Go phase is often marked by declining cognitive ability and the need for Long-Term Care (see “LTC Facts and Economics” for more details on LTC).

Let us next examine extraneous factors such as market movement or government policy that affects your retirement plan in one of two ways, either by reducing your wealth buildup or by increasing the costs that drain your wealth faster than do regular expenses.

Retirement does not mean one stops investing, even if this investment is more on the conservative side. Investing in the market involves two types of risks: volatility and sequence of return. Market volatility is widely understood as the fluctuations in the asset value due to the highs and lows of market performance, but sequence risk is much less understood. Sequence risk is the risk to the asset value from the sequence in which the highs and lows of the market occurs, and that is exacerbated by constant withdrawals such as are made during the retirement period. Both types of risks impact market return and hence asset accrual. Please read our blog “Sequence of Returns Risk” for more information.

Government policies such as taxes and interest rate also affect retirement planning. Income taxes are at their lowest levels in 80 years. It is the easiest factor to control and has the biggest impact on balancing the Federal budget. Refer to “The Future of Taxes” article for a deeper analysis of this topic. Any increase in one’s taxes will likely mean a larger withdrawal from one’s retirement assets to meet the same living expenses.

The current interest rate environment is also historically low, which lowers the expected return on fixed income instruments, which in turn reduces asset growth. While the low interest rate is, at least in part, due to a low inflationary economy, any future increase in the inflation rate will adversely affect purchasing power and thus increase the costs retirees face.

We specialize in tax-free retirement strategy and investments such as IUL, Annuity and LTC. Prefer a quick and complimentary consultation? Just email us at

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