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Will you outlive your retirement assets?

March 1, 2012

The oldest verified person on record in the US is 115 years old!  If that person retired at age 65, they lived 50 years in retirement!  Once you stop working you will begin to rely upon your assets, instead of your job, for income.  The transition from earning a paycheck to managing a portfolio can be stressful for retirees.  In fact, many studies confirm Baby Boomers worry most about outliving their assets.  

 

The first step to manage the risk of outliving your assets is to calculate how much you need for retirement.  While a lot can change over the course of 30 or 40 years, having a target will make sure you are at least in the ballpark.  A key assumption used in the retirement needs calculation is your life expectancy and underestimating it could put your future financial security at risk.

 

A commonly used life expectancy model is the Annuity 2000 Mortality Table from the National Association of Insurance Commissioners.  According to the table the average 65 year old male is expected to live to 85 years old and the average 65 year old female is expected to live to 88 years old.  

 

The problem with using the average life expectancy from the table is that the average is just that, “average”.  This means 50% die sooner and 50% live longer.  In what group are you?  In addition, the model reflects the general population, not your unique situation.  You may actually live longer because of your health history or lifestyle choices.  

 

It is probably a good idea healthier people use a life expectancy assumption that is longer than the average.  A good start is to consider the life span of your ancestors and add on about ten additional years for advances in medicine.  If you practice good health habits, add on even a few more years.  It may seem difficult to imagine living beyond 100 years old, but it is becoming more common every day!  In fact, according to the US Department of Health and Human Services the rate of centenarians is increasing about 6% every year.

 

On the other hand, it probably is not a good idea for people to plan they will be the unlucky 50% who die before the average life expectancy unless you have a compelling reason.  Many people actually die around the average life expectancy age, so the average may be appropriate for people who have health challenges.

 

Do you have concerns about outliving your assets during retirement?  We can help you get the answers you need and plan accordingly so you can have the peace of mind about a secure financial future.  Call 515-284-1011 or email laura@westfinancialadvisors.com for a complimentary consultation.

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