Solving The Retirement Smile

Jul 31, 2019

We need to talk about the retirement smile.


I’m not talking about that silly grin you daydream about having the day you walk out of your office for the last time. More on that in a moment.

You want to plan for an enjoyable period of retirement, and we all instinctively know that we’ll be in the best physical (and perhaps mental) condition to enjoy those years earlier in our retirement. 

Some have described this in general stages: first, there are the “go-go” years. Your health is good, you want to travel and enjoy yourselves, so you tend to spend more.

Then come the go-slow years. You’ve been there, done that and your energy level may have naturally declined. Your interest in “going” is less, so you spend less on travel and entertainment. 

Finally, the “no-go” years arrive where either our interest or ability to do much more than live simply from day to day declines. We aren’t doing much so we aren’t spending much.

Recent studies have adjusted that view to account for medical and long-term care expenses later in life. As lifestyle expenses decline over time, medical expenses tend to rise. Some wonky, cleaver types have charted this spending pattern and it looks like a smile, starting higher at the beginning, dipping down in the middle and rising again towards the end. 

So, what’s the best way to maximize your spending capacity in retirement? I believe the solution lies in a careful balance of accumulation and actuarial solutions. Also known as investments and insurance.

Accumulation solutions broadly include any sort of account to which you can add money and which (hopefully) grows over time. This obviously includes bank savings accounts, mutual funds, brokerage accounts and certain types of deferred annuities. IRAs and 401(k)s also fall into this category. Accumulation solutions dominate the retirement planning landscape today. We usually refer to this category as ‘investments.”

Actuarial solutions broadly include any sort of insurance or pension benefit that pays out based on age (retirement) or life event (such as a long-term care, chronic illness or death). The actuarial solutions provide a safety net in the event you or your loved one incurs any of expenses that can occur on the backside of the “retirement smile.”

Historically, accumulation solutions tend to be the realm of brokerage houses and investment advisors. Actuarial solutions are usually sold by insurance company agents. Since they often compete for the attention and loyalty of the public, they tend to emphasize the benefits of their solution over those offered by the “other side.” They see each other as competition.

This is unfortunate and their failure to cooperate serves the public poorly. 

Because only through the careful and thoughtful balancing of accumulation and actuarial solutions is it possible to keep the retirement smile from putting a frown on your face.