Retirement’s Risky Business

Could your clients survive 30 to 40 Years of Unemployment?

by Dan Carter

Have you stopped to consider the biggest threat facing your retirement? It’s running out of money. The number one fear among current retirees is living to be 75 or 80 years old, full of life, and flat broke. So, for some, living long could be a risky business.

Why is that? It’s for one very simple reason. We’re all living longer. In the year 1900, you weren’t expected to reach your 50th birthday. But in 1930, the average life expectancy rose to 60. By 1960, life expectancy went up to 70. And today, the average life expectancy is nearly 80 years old; and, if you’re in relatively good health, you can expect to live into your mid 90’s – even 100!

Generations before us would plan on five, ten, or maybe even fifteen years of retirement, but now it’s a whole new ballgame. Imagine retiring at 60 – even 65 – and living until you’re 95 … or 100. All of a sudden you’re looking at three plus decades of retirement. How do you make your retirement savings last that long?

New Realities

Face it, today we’re pretty tough individuals. A lot of us grew up in a time when kids drank from the hose, rode Stingray bikes without a helmet, jumped off the roof, got in fist fights, played in the street… and we lived to talk about it!
I came from a family of seven kids. My parents only took us to the doctor if we were bleeding profusely or if we had obvious broken bones (a protruding bone or two would qualify for a trip to the ER), but most of the time we were told to just shake it off.

We have come a long ways since those days, and for obvious reasons proper medical care is a better idea, but I believe being raised during this time and environment has created some pretty tough cookies.

The Grim Reaper is in for a big surprise when he comes calling on many of my fellow Baby Boomers­­ he’s liable to get a punch in the nose… We’ll look him in the eye and tell him in no uncertain terms that we are not ready to go quietly into that good night.

So hallelujah brothers and sisters; break out your dancin’ shoes because it looks like you’re going to be hangin’ around good ‘ol planet Earth for a while! But, as I mentioned before, longevity can bring about a venturesome situation. To combat the uncertainty you need to formulate a plan. Unfortunately most of the income plans I see out there today are only projected to last until the age of 82, not nearly long enough. Just a few days ago I was reviewing a case of a woman whose current age is age 64. Her retirement plan stated that if she started her income at age 64 it would last until she was 84 (20 years) single life only, with no allowance for her husband.

Many people don’t believe they will make it very far. But here are some numbers to consider: if a married couple are both 65 years of age, the man has a 36% chance of living into his 90s – the female has over a 45% chance ­­ together there is a 63% chance that one of them will live into their 90s.

That means that the plans being created today that run out at age 82 have a 63% chance of failure. So what do these figures mean? The Good News is that you’re most likely to have a long life. The Bad News is that, without proper planning, you’re likely to run out of money!

• The thing about retirement is that when you quit they stop paying you.
• You are retired and now you are facing 30 to 40 years of unemployment.

They may even cancel your company life insurance and health benefits. You’re out. On your own. For the rest of your life. The upside is you can do anything you want. The downside is EVERYTHING costs money.

Never-Ending Spending

People think that when they stop working they will spend less money. Let’s examine this situation.
You’re retired, so now you’re home 24-­7­-365 for 30 years … and what is that all over your hands? It’s called Time. You have time on your hands…Lots of it! Everything costs money.

A walk in the Park is free right?

Maybe … but you will need some good walking shoe$, $ell phone for emergencies while you’re out walking, water bottle$… the nice kind with the straw, ear bud$ so you can listen to your motivational guru’s, $weats or $horts­­ you can’t be seen out there looking like a bum. Think about those nice Restaurant$, Trip$, StarBUCK$, Traveling cost$, prescription$ etc., etc., etc.

I know there are things that do not cost, but you are retired; and after 30 -­ 40 plus years in the workforce you may want to treat yourself just a little. If not now, when?

My point is, living life, whether you’re living large or living small, costs moola.

Income In Retirement

Let’s back up a little. If you are still working, start thinking about planning for income in retirement. A good start is to max out your contributions to your qualified accounts 401(k)s, 403(b)s, 457s, IRAs, SEPs, etc. Also, check on your Social Security benefits. I know what you’re thinking: “Our Government is going to do away with Social Security.” Well I say to that “Who knows? Maybe, maybe not.” But hey­­ take it if it’s there, but you can’t rely on it too much, ok?

So take a look at your last Social Security Statement or go online to Social Security.gov and see how you are faring. You should see some approximate amounts at age 62, 66 & 70. And when people ask when they should begin drawing Social Security, I say “ASAP”… as soon as possible.

They say “But we don’t need the money; besides if we wait we will receive more.” That may be true, but do your own calculations. Add up your benefit from 62 to 70 (8 years worth) then try to see how long it will take, starting at age 70, to make up for the 8 years that you didn’t take. People, this is not a savings account. You cannot pass it on. I say TAKE IT because you can’t leave it! The taxes won’t be enormous.

Self Employed?

If you are self­employed make sure you are paying yourself enough so you can max out your benefit. Monitor this because this will be part of your income. Some may not be getting any Social Security at all, which means more planning will be needed to offset less income.

If you have a Pension, excellent. Guys, make sure you take the option that actually continues your pension payments to your wife for the rest of her life. I sat with clients a while back, and when I asked the man what his pension was per month he proudly said “$6,000.00.”

Then I asked if you die, how much passes on to the Mrs., and he said “”Zero” – Her face said it all. I know the pensions and annuities pay out more for a single life, but remember if you are married you are not single, and chances are the husband will die first and the Mrs. will need the income … and no, it’s not necessarily cheaper to live single. The costs don’t get cut in half because there is one less egg to fry. The surviving spouse will be paying more in taxes because they will be filing single with one half the deductions and exemptions. So plan your pensions.

Investment income is critical in today’s retirement, and that is an article all in itself. But for now let’s just say, you need enough investment income to keep up with inflation, which is the cost of living.

There are other ways to generate income besides Pensions and Social Security, such as real estate and investment income with a well­planned investment portfolio.

For my money, a good choice would be the new Hybrid accounts. They create joint lifetime income for the husband and wife that will never run out, they are market crash safe, and they have unrestricted growth potential­­ plus they can leave a residual to your beneficiaries.

I wish I had all the answers, but I don’t. One thing for sure is that there’s a better chance now that we will all be around longer. You may not be here for Haley’s comet, but 30 to 40 years is well within the realm of reality.

Just put together the best plan you can, stay healthy, and be happy you’re here. Considering the alternative, it’s all­good. ◊

One response to “Retirement’s Risky Business”

1. vincent D. Martarano says:

   October 17, 2016 at 10:24 am

   WOW! what a great article. This is the best language I read in a long time. Right on the money. I will email this to all my 65 or younger clients.