Helping You Understand Key Retirement Statistics
The lynchpin to financial planning is: When can I retire?
However, dealing with a lot of engineers and analytics I know many of you like to understand statistics and averages when formulating decisions.
While I don’t consider the below information part of a robust financial plan, I do recognize gaining perspective is indeed helpful. In the end though, I think the best course of action is to work with an accredited financial planner to achieve your financial goals.
Average Retirement Age
The “average” American retires at 63. While appealing, I don’t recommend using this baseline. Why? Because the average retiree lives on Social Security as their sole form of retirement income. Additionally, the average retirement savings for a family (between ages 56-61) is $163,577. Once we understand the financial circumstances of the average retiree, it becomes clearer to our clients these numbers are not reflective of their personal circumstance. Therefore, while helpful, these values aren’t guiding.
Social Security & Medicare Ages
Understanding when key retirement vehicles start is helpful, too. Medicare is fairly easy. Once you turn age 65, you are eligible to start receiving Medicare.
Social Security, however, is trickier. Today, everyone is eligible to start receiving social security benefits at age 62. But, the latest you can collect is 70. Every year you wait your benefit increases (roughly 8%/yr). The full retirement age (FRA) changes depending on your birth year. (For figuring out your specific FRA, here is an online tool: full retirement age.) Just to be clear, the range is anywhere from 66 & 6 months to age 67.
How long will you live? I get it; it’s a morbid question. But just like funeral planning, life expectancies are vital to crafting a complete retirement plan. In 2014, the averages for a 63 year old American were: 19 years (or age 82) for a man and 22 years (or age 85) for a woman. You can check out your life expectancy here (Actuarial Life Table).
For a more detailed calculation, you can take the few minute quiz at the living to 100 website.
Additionally (for you visual types), below is a great graph (courtesy of JP Morgan) showing the chances of a 65 year old couple living to age 80 and 90.
Fortunately, or unfortunately (depending on if the glass is half empty or half full), longevity is one of the biggest threats to any retirement plan. Centennials are the fastest growing demographic in our country – a fact to surely keep in mind!
Related: The 7 Steps to Negotiating a New Car
Average Cost of Retirement
According to Fidelity’s retiree health care cost estimate, the average cost of retirement is $738,400. The average retired person spends between 70-80% of their pre-retirement spending in retirement.
To be fair, this is why it’s called averages. In my experience, these figures above are not “accurate. I’ve seen retirees spend more than they ever have and I’ve seen those so worried that they hoard every last dollar. What I can tell you with certainty is: everyone slows spending, eventually. In some instances, health care costs make up that difference (just some food for thought).
The old rule of thumb is to plan a drawn down rate of around 4% of your assets in retirement. The other rule I’ve often heard is plan to have 10-12 times your current pre-retirement income saved. So, let’s say you make $200,000/yr. In this case, you should have somewhere in the range of 2 to 2.4 million dollars saved for retirement.
That’s a Lot of Info
Hopefully, you better understand some of the key retirement statistics. I again state, I wouldn’t use these as steadfast rules. Rather, use these tools to understand your current standing. Retirement planning is very customizable and specific.
Building a plan based off averages is well… average. You deserve better!
An Emerging Theme In Thematic Investing
Exchange traded funds (ETFs) are popular vehicles for market participants looking to engage in thematic investing. Thematic investing looks to take advantage of future growth trends, including disruptive technologies. Given that forward-looking approach, stock-picking in the thematic universe is equally as hard, if not harder, than in traditional market segments.
Go back to the late 1990s, before the bursting of the Internet/technology bubble. Back then, investors stood an equal chance of selecting E-Toys over Amazon or some no longer in existence networking equipment maker over Cisco.
“History is littered with examples of prospering industries with no indication of which company will come to dominate the industry,” according to Nasdaq. “This suggests that successful thematic investing is more about selecting baskets of investments rather than single securities.”1
The ALPS Disruptive Technologies ETF (DTEC) provides basket exposure to a broad swath of thematic investments. DTEC features exposure to not just one or two emerging technologies, but 10 such themes on an equal-weight basis.
The 10 themes represented in DTEC are as follows: 3D printing, clean energy, cloud computing, cybersecurity, data and analytics, fintech, healthcare innovation, Internet of Things (IoT), mobile payments and robotics and artificial intelligence (AI).
Generally speaking, fund issuers have been quick to respond to disruptive and transformative technologies, bringing products to market to tap these themes. Prior to DTEC coming to market late last year, there were ETFs devoted exclusively to cloud computing, cybersecurity, robotics and other themes featured in DTEC. However, few use the basket approach to themes employed by DTEC.
February, a rough month for U.S. stocks, highlighted the advantages of DTEC's multi-theme methodology. Seven of the 10 themes found in the fund finished the month lower, but DTEC was able to outperform the S&P 500 on a monthly basis.
Focusing on individual themes can be rewarding over the long-term, but not all investors have the risk tolerance for such a strategy. Consider this: the Indxx Global Robotics & Artificial Intelligence Thematic Index jumped more than 48% in 2017. That type of performance is enough to seduce many investors, but that same benchmark slipped 7.60% in February, generating monthly volatility of 34.10%.2 Said another way, that robotics and AI index's February slide was more than triple the loss experienced by DTEC during the month.
While it probably is not accurate to call the indexes devoted to individual disruptive themes “old,” many use old school weighting methodologies. For example, the two largest components in the ISE Cloud Computing Index are Netflix, Inc. (NFLX) and Amazon.com Inc. (AMZN). Only two members of the S&P 500 have larger market values than Amazon while Netflix currently has a larger market cap than Wal-Mart (WMT) and McDonald's (MCD).
Holdings subject ot change as of 12/31/17
For its part, DTEC not only equally weights its 10 disruptive themes, but its 100 components as well, potentially reducing single stock risk in the process. As the chart below confirms, equally weighting stocks is rewarding across sectors and market capitalization segments.
Past performance does not guarantee future results
Annualized returns for the past 10 years show seven of the 11 S&P 500 sectors, when equally weighted, outperform cap-weighted equivalents, according to S&P. Three of those seven sectors – financial services, healthcare and technology – are prominent parts of DTEC's roster.
1 Source: Nasdaq Dec. 28, 2015 https://www.nasdaq.com/article/what-thematic-investing-is-and-its-strengths-and-risks-cm559209
2 Source: ETF Replay data
An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus which contain this and other information call 866.675.2639 or visit www.alpsfunds.com. Read the prospectus carefully before investing.
An investment in the ALPS Disruptive Technologies ETF (DTEC) may be subject to substantially greater risk and volatility than investments in larger and more mature technology companies.
There is no assurance that the market developments and sector growth based upon the themes discussed in the article will come to pass.
ALPS Disruptive Technologies ETF shares are not individually redeemable. Investors buy and sell shares of the ALPS Disruptive Technologies ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.
ALPS Advisors, Inc. (AAI) has engaged IRIS Werks, LLC (IRIS) to produce analysis and commentary on ALPS-advised ETFs. IRIS currently has a compensated business relationship with AAI. AAI is not affiliated with IRIS.
The content and opinions expressed in this article are that of the author and not the views and opinions of AAI. In addition, AAI assumes no responsibility to ensure the accuracy of the content written by the author.
There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the prospectus. Past Performance is not indicative of future results.
The fund is new and has limited operating history.
ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Disruptive Technologies ETF. AAI is affiliated with ALPS Portfolio Solutions Distributor, Inc.
The author is not an investment professional and this article should not be considered investment advice. While the information and statistical data contained herein are based on sources believed to be reliable, the author takes no responsibility to ensure the accuracy of the content. Additionally, this article should not be relied on or be the basis for an investment decision. Information that is historical is not indicative of future results, and subject to change.
S&P 500®: A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
S&P SmallCap 600®: A capitalization-weighted index that measures the small-cap segment of the U.S. equity market.
S&P MidCap 400®: A capitalization-weighted index that measures the mid-cap segment of the U.S. equity market.
Indxx Global Robotics & Artifical Intelligence Thematic Index: The Indxx Global Robotics & Artificial Intelligence Thematic Index is designed to track the performance of companies listed in developed markets that are expected to benefit from the increased adoption and utilization of robotics and Artificial Intelligence ("AI"), including companies involved in Industrial Robotics and Automation, Non-Industrial Robots, Artificial Intelligence and Unmanned Vehicles.
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