A recent study suggests over 50% of adults age 50 or older underestimate their number. Obviously, if I ask you when you’ll die, you clearly have no answer to give me. By the same token, if you ask the same question of yourself, you might hazard a guess. Chances are your answer will be wrong on the low side.
I bring this up because it’s a critical element when planning for your retirement. And yes, that’s something I spend a lot of time thinking about as I attempt to teach others how to get ready BEFORE they retire.
No one on this planet, save a few prisoners here and there, have a definitive idea when it will happen. Statistics tells us we’re living longer and longer. As a financial planner for many years, the default metric when helping someone else think about this problem was to cite life expectancy. For example, if you were a male age 50, and the average life expectancy for a male age 50 was 75, then it was easy to figure out how much money you’d need if you decided to retire at 65. Enough to last ten years.
Only that turned out to be a huge mistake. According to the Social Security Administration that tracks these sorts of things, a man who turned 65 in 2019 can expect to live to age 84, on average. Unless my math is wrong, that’s 19 years, and counting. The key here is the word AVERAGE. If you have any background in math, you’ll know that for each male age 65, it means half will live less than 19 years and the other half will live more than 19 years. If you planned to be dead in 10, how are you going to pay your bills when you reach 76, much less 84 and beyond?
For women it’s worse, since their life expectancy is long since known to be more than men. I saw a recent study that says for a couple age 65, in good health, there’s over 90% chance one of them will be alive at age 95. The odds favor the women.
Obviously none of us KNOWS the answer, but as you think about the years you’ll spend in retirement, one of the things you must remember is that if you don’t die, you’re still going to have bills to pay. No one is going to just show up at your front door with a bucket of money if you didn’t pay your phone bill or electricity bill.
Planning to live to 100 should be your default assumption. It will influence when you finally retire and leave the workforce. It will influence when you start taking Social Security benefits, assuming you’ve been paying into that system most of your working life. It will influence how fast you draw down your personal savings that you’ve been accumulating for years. It can’t be much fun to run out of money before you run out of life.
It’s a question that cannot be answered accurately, but it’s nevertheless a critical question you must ask of yourself, and answer. It doesn’t matter if the answer is wrong, which is almost a given. What’s important is that you assign yourself a number to create the proper framework for your financial future. You’ll be glad you did.
Tony Kendzior \ 11 FEB 2020