Planning for a Century: How 3M Employees Can Navigate the Financial Landscape of a Longer Retirement

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Jordi Visser monitors his heart rate daily. In addition, he monitors his breathing, tracks the quality of his sleep, and consumes a diet rich in fruits and vegetables. Visser, 56 years old, does not do this due to poor health. In contrast, he is focused on the future. His objective is a prosperous and active retirement spanning decades. In 2011, 54% of retirees believed they would not live as long as the average person of their age and gender. Only 31% reported a longer life expectancy than the population average.

According to a PlanAdviser article, 'The Society of Actuaries found that approximately 43% of retirees underestimate their own life expectancy by at least five years,' says Kate Beattie, senior retirement income strategist with Capital Group in Los Angeles. Everyone seems to be aware that Americans are living longer than ever before, except for investors.

'We are at the nexus of technology and longevity,' says Visser for a Barron’s article. 3M employees must note how the chief investment officer at Weiss Multi-Strategy Advisers also believes that in the coming decade, advances in medicine and technology may allow Americans to not only live longer but also healthier lives, as published in the Barron's article. Tom Brady is a prime example of something that was deemed impossible, according to Visser.

Brady, who recently announced his retirement from football at the age of 45, is, of course, in a class by himself. But Visser's point is unmistakable: the rest of us mere mortals may need to reevaluate our assumptions about what is achievable in our senior years and our investment strategy. 3M employees looking to retire should understand how a retirement that could last decades requires a portfolio designed for the long haul. Similarly, controlling your expenses while still enjoying your retirement may require a delicate balance.

Maintaining Stocks

Soon-to-be 3M retirees may benefit from considering an old rule of thumb for retirement investing: subtract your age from 100 to determine the proportion of your portfolio that should be invested in stocks. A 70-year-old should allocate 30% of his or her portfolio to stocks, according to this rule.

When a healthy adult has a chance of living to 100, this rule seems hopelessly obsolete. This 70-year-old must plan for the next 30 years, which necessitates remaining invested in equities to generate the growth necessary to combat inflation.

According to a Barron’s article, Pete Bush, an advisor at Cetera Financial Group and co-founder of Horizon Financial Group in Baton Rouge, states that equities are the long-term engine your portfolio requires.

“People typically believe, oh, I'm getting close to retirement. I should play it safe. They are contemplating retirement, not retirement itself,” he says.

3M employees should consider how some 70-year-olds are actually as healthy as 50-year-olds. In light of this, Visser suggests that investors consider their biological age, which is essentially a measure of your health that may be vastly different from your chronological age. Scientists are developing accurate methods for determining biological age. Some of the techniques, such as analyzing saliva and blood samples, may appear fantastical. But Visser says there is a fundamental takeaway for investors: 'Your health should influence how you view your portfolio.'

For 3Memployees, identifying the optimal asset allocation is a piece of the puzzle. Bush advises investors to strike a balance between growth and value, pointing out that growth stocks have performed well over the past decade but poorly over the past year. In the coming years, international stocks may also outperform U.S. stocks, in stark contrast to the performance of the sector over the past decade. This is partially because European and Asian stocks are typically less expensive than American stocks. The asset manager Vanguard anticipates higher 10-year annualized returns for developed markets outside the United States, between 7.2% and 9.2%, than for U.S. markets, between 4.7% and 6.2%.

According to a Barron's article, Jeremy Altfeder, a financial advisor at Captrust, claims bonds can play an important role for income and security, especially now that interest rates are higher. 'Consider a client who spends $100,000 per year. Therefore, we require a year's supply of necessities. We could reserve $100,000 in Treasury bills.”

Altfeder mentions how investors can feel more at ease when they have sufficient funds set aside, sometimes as much as seven years' worth depending on the client. 'Laddering out Treasuries and other instruments is highly predictable,' he says. If you hold the bonds until maturity, you are aware of their yield.

Numerous financial advisors also recommend complex strategies involving alternative investments, trusts, and estate planning, depending on the individual's wealth, tax situation, desire to leave an inheritance to heirs or charity, and risk tolerance. The objective is to preserve this wealth, sometimes into the next generation.

A New Perspective on Work-Life Balance

3M employees should consider how the possibility of living a longer, healthier life generates additional incentives to work longer and delay filing for Social Security. This will ensure a larger monthly benefit as you claim at a later age. These actions can increase your savings and provide your portfolio with additional time to grow before you begin withdrawing funds.

There are two additional ways for investors who need to save more to advance their retirement savings. First, the updated contribution limits established by the Internal Revenue Service permit investors to contribute up to $22,500 to their 401(k), 403(b), and other retirement plans in 2023, an increase from the previous limit of $20,500. People over the age of 50 can save up to an additional $7,500. New legislation is phasing in an increase in the age for required minimum distributions, or RMDs, from 72 to 75, which will benefit investors who are planning for a long retirement.

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3M employees should keep in mind how they are not required to remain in their current position or even work full-time. Chip Munn, advisor and chief executive officer of Signature Wealth Strategies in Florence, South Carolina, has assisted clients in reorganizing their work so they are not in a hurry to retire. According to a Barron’s article, he claims 'Older workers have a great deal of value and leverage.' However, there may be no formal programs at your company to accommodate your desired schedule, so you may need to approach your employer and say, 'Hey, I don't want to retire, but I'd like to work part time.'

Additionally, there are benefits to being active. 'Those who are happiest and healthiest work longer but less,' he says.

Even for those who believe they have sufficient savings, early retirement can be riskier than you might expect. 3M employees should consider the story of Cyndi Hutchins, a Bank of America employee who witnessed this firsthand. Her grandmother retired at the age of 55 after a 41-year career.

'At that point, I began to think differently about retirement,' says Hutchins, director of financial gerontology in the retirement research and insights group of a bank. 'We anticipated a 10- to 15-year retirement. There were numerous factors that we had overlooked. She had a pension, but it was a small pension, and it was difficult to make it last for 41 years. Her family was ultimately required to contribute to her grandmother's living costs.'

From 1960 to 2015, life expectancy in the United States rose by nearly 10 years, from 69.7 to 79.4 years. According to a report from the 2020 Census Bureau, the average life expectancy is projected to increase by another 6.1 years between 2016 and 2060, reaching a record high of 85.6 years. 3M employees should also note how Americans are living longer than ever before. Almost one-fifth of the U.S. population is over 65 years old.

As a result of rising inflation and last year's weak stock and bond markets, it is not surprising that more people fear running out of money in old age. This includes individuals with substantial savings. According to a 2022 survey of high-net-worth investors conducted by Natixis Investment Managers, more than a third of millionaires believe that achieving a secure retirement 'will require a miracle.'

3M employees should recognize how this anxiety is driving a surge in the demand for annuities, which are insurance contracts that guarantee a lifetime income. Frank Paré, founder of PF Wealth Management, has contemplated including a single premium immediate annuity, or SPIA, in the retirement plans of some clients. With an SPIA, an investor pays a lump sum to an insurance company, which then provides a lifetime income stream to the annuity owner. The payout of the annuity depends on several factors, including the age and gender of the owner.

However, there are a few exceptions, says Paré. First, fees may be considerable. Second, you must maintain a portion of your retirement funds in stocks, bonds, and other assets. 'You do not want to leave yourself without sufficient liquidity outside the SPIA,' Paré says.

Another concern with annuities is inflation. 'Your purchasing power will be in jeopardy if you don't have an inflation rider and inflation accelerates like it did last year,' Paré says.

For 3M employees considering an annuity, keep in mind that it's just one tool among many. 'I don't believe in silver bullets,' Paré says.

Expense Management

In addition to maximizing income, retirees of all wealth levels must monitor their budget and avoid major new expenses that require costly maintenance, such as a vacation home or new boat, as they enter retirement.

3M employees should note how healthcare is the expense that retirees underestimate the most, particularly for healthy seniors who are fortunate enough to live a long life. According to a 2022 report by Fidelity Investments, a 65-year-old couple can anticipate spending an average of $315,000 on medical expenses during retirement. According to Fidelity, one of the nation's largest 401(k) providers, this estimate increased by 5% from 2021 and has nearly doubled since 2002, when it was $160,000.

In the first two decades of retirement, a healthy lifestyle can help keep costs down, but there are some factors that are beyond our control. Consider investing in a health savings account, which provides advantageous tax benefits, to help prepare for future medical expenses. 'If you can contribute to an HSA without using the funds to pay for current healthcare expenses, it's a fantastic way to save for long-term care,' says Hutchins of Bank of America.

For 3M employees, where you choose to live in retirement will have a significant impact on your expenses, so make this decision as soon as possible. Some Americans choose to relocate to states with warmer climates and cheaper living expenses. Consider whether your new community will be able to accommodate your future medical needs, in addition to your hobbies.

In retirement, the majority of Americans do not move or do not move very far. According to a 2021 AARP survey, approximately 75 percent of adults aged 50 and older intend to remain in their current residence for the foreseeable future. 'If you're healthy and active, it's simple to remain in your current home,' says Hutchins in the Barron’s article. 'As you age, consider whether your home is age-friendly.' She says that if you do not have a bathroom on the first floor, you should include the cost of this renovation in your financial plan.

The Key to Contentment

Perhaps most importantly, advisors and healthcare professionals agree that maintaining an active social life in retirement is the key to happiness. Obtain a hobby if you do not have one already. Donate time to a charity. Share a meal with friends.

For 3M employees, this recommendation may sound trite. Despite that, it has significant health benefits. The Harvard Study of Adult Development, which has been following a group of adults and their descendants for more than eighty-five years, has discovered that close personal connections are a key factor in both longevity and physical and mental health.

Isolation and loneliness, according to Bank of America's Hutchins, accelerate cognitive decline symptoms the quickest. 'You must continue to interact with others and ensure that your physical and emotional needs are met.'

Joseph Coughlin, director of the MIT AgeLab, recommends considering your lunch companions when planning for retirement. This determines not only the quality of your investment portfolio, but also the quality of your social portfolio. Do you have friends? If you retire and move, will you be able to locate them? 'It takes time to develop a strong friendship,' he says.

Ultimately, if you are going to live to be 100, you want to have close personal relationships and enough money to be worry-free.