SHOW ME THE MONEY
The end is not nigh! But you should plan thoughtfully now, to be able to afford to live well, longer. A new column on finances and retirement
Unless you are an avid scuba diver (or French), you may have missed that Jacques-Yves Cousteau, the world-renowned oceanographer, filmmaker and co-inventor of the SCUBA (self-contained underwater breathing apparatus) tank, passed away in 1997, at 87.
You may have also missed that France’s Jeanne Calment passed away in the same year, at the incredibly ripe old age of 122 years, 5 months, and 14 days, setting a Guinness Book World Record as the oldest officially recorded person ever. Though her age was verified, researchers in Russia set out to disprove the claim. They alleged that Jeanne actually died in 1934, and that the family reported it was her daughter Yvonne who died, in order to avoid inheritance taxes. French researchers recently re-validated Jeanne’s death and reported “there was neither tax fraud nor falsification of Jeanne Calment’s identity.”
Understandably, many people would like to know what did she do to live to 122? But there is another question to pose: what did she do that allowed her to live financially to age 122?
The average life expectancy in France today is around 83 years old, it would have been lower in her day, so Jeanne had to support herself (or be supported) for at least four decades beyond the average person.
That’s the critical predicament with using average life expectancy in planning lifestyle in retirement. Average life expectancy is the age when half the people have passed. Which, of course, means half have not!
In the US, for someone retiring at age 65, their average life expectancy is around another 19 years, according to the CDC. Traditional retirement planning advice has recommended having a retirement income plan that ensures retirement lifestyle to life expectancy, and maybe a little beyond.
The American Academy of Actuaries issued a report a few years ago that shows that one in five 65-year-old men will live to age 90, one in eight to 95. For a 65-year-old woman, almost one in two will live to age 90, and one in five to 95. That’s a probability that can’t be ignored. So here’s the real question for retirees: Do you want to risk running out of money if you live too long?
The key is to have the optimum combination of two kinds of retirement income: income that is predictable and remains constant throughout your lifetime (regardless of how long you live) and income that rises to keep pace, and even outpace, inflation for as long as you live. Nobody wants to ask family members for help should they live too long. (Well, almost nobody.)
The bigger danger for most people isn’t running out of money, it’s living a marginal, fearful, close-to-the-vest existence when they could afford to upgrade their lifestyle. Many lack the confidence and freedom to fully live out their retirement dreams.
Either would be a travesty… and both are avoidable. There is an easy solution: have your retirement income plan stress-tested by a retirement specialist (like me) to determine if an upgrade is possible. We use financial models and software to analyze spending habits versus assets, and determine, based on certain assumptions or guarantees, if you are able to spend more, or need to make adjustments to ensure your money will last.
Once assets have been stressed tested, the advisor should be able to recommend strategies/products that will allow you to have a guaranteed revenue stream throughout your lifetime.
A few possible strategies/products are to use distribution focused investments, dividend focused investments, and/or using guaranteed income annuity products, to name a few. The current annuities do not force you to annuitize the contract in order to receive guaranteed income for life.
All the while, you are still invested in the market. Best of all, when you die, your heirs will receive any remaining assets in your account (which is not the case with older annuities, where the insurance company keeps any remaining assets). Said another way, you can invest in the market and even if it decreases, or your account has a zero balance, you would continue to receive the same income for life, because the insurance company, under the annuity contract, guarantees your income payments for life, regardless of the account value.
Smart strategies will allow you to do what you want to do, when you want, including traveling to places you’ve always wanted to go, without worrying about how you will afford it.
As for aging to122 years, 5 months and 14 days? Don’t plan on that! There’s a slim-to-none chance you are going to unseat Jeanne Calment’s Guinness Book World Record.
But, you know, never say never…
Marc Goldstein, our Finance Editor, is a nationally known Financial Educator and Retirement Wealth Specialist, who helps people protect and pass on their wealth www.mgoldsteinassoc.com