The Right Retirement Ratio?

I don’t know what a perfect life looks like or a perfect retirement plan either. What I can say is that it would be really fun to plan a life that was built upon a 70/100 ratio (I just made that up, it’s not a thing).

That is, a person would enjoy their work enough to retire from it at age 70 and then could be assured to live to age 100. In this scenario, and with crystal ball clarity, a person could make some really clear and very long-term decisions, whether financial or health, social, or vocational. Seeing far into the future could nearly eliminate many of the ‘retirement risks’ a person could face so they could really just go all out, pedal to the metal. In this world, there are plenty of moves a person could make to maximize financial success. Here’s a partial list to consider if you’re considering the 70/100 track.

• Delay claiming Social Security benefits until age 70 because every year you wait after age 62, the amount you receive will increase by 8% annually. Over a long retirement (30 years in this case) the added wealth is enormous.
• Invest in 100% stocks. Over long periods of time, stocks outperform other assets like bonds, CDs, and cash, but short-term declines test one’s patience. If paid work is assured until 70, an investor doesn’t need the risk management that bonds or even safer assets offer.
• Exercise regularly. Not only does it (sort of) feel good to finish a workout, the many health benefits contribute to a longer and more vibrant life but also to lower healthcare costs, making good health a great financial investment.
• Pay off debts soon and never go back into debt. The explicit savings of not paying interest to creditors is money in your pocket, and avoiding buying things you can’t pay cash for now likely means you’ll buy less stuff you don’t really need, a double benefit. Less debt to service means less income is needed to service that debt which means less taxes are owed on the income needed to pay the debt. Got it? Debt can be fun…that is, until it isn’t.
• Set up and fund a dedicated long term care investment account. By doing this as soon as you can, you may be able to self-insure against many of the risks and costs of late-in-life medical needs, in lieu of buying long term care insurance.
• Invest early and heavily in your education as long as your education will grow your income later on. The difference of just a few percent of added income from more education compounded over decades can have a profound impact on financial security and wealth building in the long run.
• Buy a nice house, but not a luxurious house, then live there a very long time. The notion that a big fancy house is a great investment is not supported by the data. The added size can have a multiplier effect on decades of house-related expenses, and the growth you’ll experience in the value of the home may not warrant these added costs. Buy in a nice safe area and enjoy the peace and security that comes from paying it off early, not to mention the potential joys of actually knowing your neighbors.
• Beware the little things that can become big things. Investing in things we love are priceless while losing money to things we don’t love can hurt the bottom line over many years. To the extent that you can, be deliberate in how your spending money is allocated.
• Treat your kids well. The ideal long term care plan may be to have your kids return the favor of care that you provided to them for all those years. Maybe you don’t move in with them (maybe you do) but having some visitors and support sure can go a long way toward a dignified end of life.

I don’t know if the 70/100 ratio works well for you but that’s not entirely the point. These strategies are worthy of consideration for all long-term investors and planners if they can see far enough into the future. Maybe your plan turns out to be a 62/84 plan or a 76/112 plan, but anyway you shake it, planning long, long-term can have enormous benefits over the years.