Starting next month and continuing for a decade or so, 10,000 people a day will turn 65 years of age. Of course these people will have many decisions to make concerning their retirement but the main one is perfectly binary. In essence it is this: are they going to have enough money to last or are they going to outlast their money? All other concerns pale in comparison. The new retirement reality is this: either retire later; save more now; or spend less.  

Solving the new retirement reality involves understanding that the most prevalent financial risk is maintaining purchasing power over a 25-35 year timeframe. To get a better idea of an average 60 year old couple's time horizon, view our life expectancy chart. We often tell clients "everything you buy costs more every year". In almost three decades of advising individuals, we can count on one hand those that can maintain purchasing power needed to meet their goals without a majority of their assets invested in the stock market. We need to be in the market because it has the most credible long term record for outpacing the ever upward curve of living costs.

To make smart retirement decisions we need to reverse our thinking so that short term market volatility (which leads to the long term returns we need) is thought of as pleasurable (instead of painful). In reality it is.  If we can avoid being scared out of the market at inopportune times we have a much improved likelihood of being successful.

The next decision point involves capturing returns that the market freely provides without trying to out-select or out-guess. Market studies suggest that there is a substantial difference (around 7% per year) between what the market provides and what actual investors receive. Most of this is the result of chasing "the best fund", "best manager" or "best stock". These activities may produce short term psychic benefit but often produce poor outcomes.

No one knows (or even can know) the exact direction of the economy or what the markets will do this week or next. In reality it matters little once we understand the formula we are attempting to solve. Will our money outlive us or we will outlive our money? That is the question.