J.P. Morgan Asset Management Monday released the 10th edition of its annual Guide to Retirement, which analyzes the most significant issues impacting retirement to help investors and their advisers make informed decisions and take actions to achieve a comfortable retirement.
“Retirement investors and advisers 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,” said Katherine Roy, chief retirement strategist at J.P. Morgan Asset Management. “The 2022 Guide to Retirement has been designed to help advisers tackle the most pressing retirement challenges and provide strategies to help drive stronger retirement outcomes for clients.”
The main theme of the new guide is that investors and their advisers should plan for longer retirements as average life expectancy continues to increase. The guide recommends planning for 35 years in retirement on average, rather than the previous 30 years, and perhaps even longer for nonsmokers in excellent health.
But many people tend to plan to retirement “from” something, rather than “to” something, Roy said. The transition can be particularly difficult for married couples as each spouse navigates how to spend their newfound time, both together and alone.
The guide identifies certain “Pushes” to help advisers guide their clients as they transition into retirement. Pushes is an acronym for having a sense of Purpose; Using time to work or help others; Socializing with family and friends; practicing Healthy habits; Experiencing gratitude; and focusing on Strengths as we age, which may differ from former abilities.
Higher-income workers will need to save even more than previous generations as Social Security will replace a smaller percentage of their pre-retirement earnings, and access to pensions continues to decline for each successive generation. Meanwhile, retirees will have to continue investing for growth to sustain them through a long retirement and to offset the effects of inflation.
Income replacement needs have risen across the income spectrum and now range from 72% to 98% of pre-retirement income, with lower-income households needing almost as much income in retirement as they did while they were working. For households with investible wealth (not including a primary residence) of $1 million to $3 million, average spending is highest around ages 50 to 55 and then declines until about age 80 when it begins to rise again, mainly due to health care costs and charitable contributions.
Finally, the annual J.P. Morgan Guide to Retirement 2022 says it's time to retire discussions of how to fund discretionary versus non-discretionary spending, since the definitions are highly personal and vary from one client to the next. Better to focus on stable costs that should be funded with predictable sources of income, such as Social Security, a pension or an annuity, and use cash and investments to fund more variable types of spending, such as health care costs.
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