What is your planning horizon?

Make sure your investments are set to last.

29 Oct 2019

Key takeaways

  • Are my savings and investments enough to maintain my standard of living in retirement?
  • Is the risk level in my portfolio appropriate for my expected lifespan?
  • Am I at risk of outliving my assets?

As the human lifespan extends beyond our expectations, it’s important for people to update their financial plans to match their longevity.

In a recent Top of the Morning podcast, Michael Crook, Head of Americas Investment Strategy at UBS Chief Investment Office, shared key insights into how to bring your finances into alignment with your lifespan, enabling you to balance saving for the future with enjoying your assets today.

Implementing these expert strategies can help you upgrade your financial plan to meet both your short- and long-term needs.

Don’t underestimate your longevity

People aren’t alone in underestimating how long they will live, Crook said. Demographers are prone to making the same mistake.

Given our prolonged lifespans, it’s important to plan for those extra years, which pose a similar planning and investing challenge faced by those looking to retire early.

“Right now, if you are a 65-year-old healthy couple in the US, I think you should be planning to live at least to the age of 100,” Crook said. Even if one spouse runs into health issues, he argued, chances are good that the other will reach their mid-90s.

How to know if you have the right plan in place

Preparing for a retirement that can last for decades takes careful planning. Crook recommends taking another look at your financial plan, and carefully considering what your life might look like at that late stage.

“It's very reasonable for families to want to spend more in early retirement,” Crook explained, since this phase (which Crook calls “My Time”) is when retirees are still healthy enough to travel and spend on leisure.

While you can build a plan that enables you to enjoy those first years, it’s important not to ignore the longevity risk.

Your pension and Social Security may provide stable income. But it’s important for investors to consider whether their plan is able to provide for 30 or more years of life in retirement.

Find the optimal mix of risk and volatility

“The most important thing to do,” according to Crook, “is to really understand the tradeoffs.” Short-term investments with low volatility feel safe, but it’s the long-term investments with greater volatility that pay off in the long run.

Many investors look to bonds and cash equivalents to avoid volatility in their portfolio, Crook explained. But comfort comes at a considerable cost. Over a longer period of time, equities typically outperform other asset classes.

Beware of behavioral investing traps

If you have multiple decades ahead of you, it’s important to consider that difference in performance when weighing risk and volatility.

Crook advises against “focusing way too much on short-term volatility and letting that guide investment decisions.” Instead, he recommends aligning your investments with your actual objectives, which are often long-term in nature.

UBS utilizes the Liquidity. Longevity. Legacy. (3L) framework, which can help investors find the right investment strategy—and risk level—by segmenting wealth by purpose. The Liquidity strategy is designed to meet the next few years of spending, and is invested in safe, short-term assets like cash and bond ladders; the Longevity strategy assets are resources designed to fund retirement spending for the rest of your life, and should generally be invested in a balanced, well-diversified portfolio of stocks and bonds; while Legacy strategy assets are intergenerational in nature and—since they represent “excess capital” that goes beyond lifetime spending needs—can be geared toward growth.

Prepare your money for your future

If you’re unsure about how your portfolio aligns with your short- and long-term needs, contact a UBS Financial Advisor today for personalized insights.

Get started now by listening to the full podcast featuring Michael Crook. You can also read the full report on optimizing your investments to meet your lifelong goals. The road to investment success is just a few clicks away.


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