When you are considering when to collect retirement benefits from Social Security or you are designing a financial plan to fund your full retirement, one important factor to take into account is how long you might live. A well conceived plan should include multiple, diversified streams of income with high reliability for the full duration of your life. If your spouse is younger than you are, your plan should cover all living and medical costs through an age beyond the average.
How long can you expect to live?
According to data compiled by the SSA:
–A man reaching age 65 today can expect to live, on average, until age 84.3.
–A woman turning age 65 today can expect to live, on average, until age 86.6.
And those are just averages. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95. A healthy 65 year old couple has a 25% to 50% chance of seeing one of them hit age 95.
Another thing to consider: every year you get older, your life expectancy rises a touch.
Want to know your life expectancy? You can use the Social Security administration’s simple Life Expectancy Calculator to get a rough estimate of how long you (or your spouse) may live (links provided below). Remember, this is not a prediction of your date of death, but merely the statistical average. If you are healthy and lucky, you can beat the averages by five to fifteen years.
Because your “expiration date” is unknown, it is not always prudent to predict an exact date of death, and plan for your finances to run out precisely on that date. Yet, too often, financial plans are calculated that way.
In the real world, the quality of life dwindles with your money.
Spending down finances to 10% of what you currently have may look fine on a Monte Carlo simulation in a planner’s office or an online planning website, but the real world is much different. Picture yourself and your spouse at age 85 or 86. If you have spent down 90% to 95% of your assets, how will you feel about yourself? You will have gone from being a prosperous couple with ample wealth, to the poverty zone. It will give you little comfort to know you only have a year or two to go until to your “expected date of death”. I suppose the two of you can celebrate that your plan will be successful if you both pass away on time, but I doubt that will be a pleasant thought.
Often times we see financial plans done by investment managers whose true agenda may be keeping your money invested with them. These plans come out neat and tidy–ending at age 85 or 86. They will describe this plan as a success even if 95% of your current assets have disappeared. The inference is that you will quietly die (peacefully, with no need for long term care) on your projected date.
You can safely write a check on that day to someone you don’t like ( like the IRS perhaps? )
How long should you plan to have income sufficient to your needs? If you feel comfortable picking an age and building your plan around that specific date, you have more courage than I do, and most of my clients. You’ve arrived at your current financial position in life by going beyond the average in effort, creativity, and savings habits. Why settle for the average when it comes to the final ten years of your life, whenever that occurs?
My definition of financial success for my clients is: “more coming in than going out from now on, no matter what.”
If you would like to build a financial plan that gets you to and through retirement–and does not involve you or your spouse going broke, let’s get together soon.
Spending down your assets in the wake of market crashes, political turmoil, and future recessions is a challenge to take seriously.
I can show you how to build streams of income to complement your Social Security for more financial peace of mind.
In the meantime, here are two very helpful links provided by the Social Security Administration:
Kiplinger contributor, Retirement Advisor