Longevity and the Risk of Outliving Your Money

One of the greatest retirement fears is outliving your money. And it is a real fear.

People are living longer because of the focus and education on health, fitness, and longevity research. There is also more information on living longer and eating healthier than ever in the history of our planet.

People also live longer because of gene therapy, CRISPR, and other medical discoveries.

Experts share that artificial intelligence will be able to determine diseases we are predisposed to getting three years prior to the onset.

These and numerous other medical advances increase the opportunities for longevity.

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The 3 Retirement Phases

1. The Go-Go Years

When a person retires, they are often in the go-go years. They may spend their time traveling, golfing, fishing, pursuing hobbies, and spending time with their grandchildren.

2. The Go-Slow Years

The next phase is referred to as the slow-go years. During this phase, the person slows down and doesn’t do as much.

3. The No-Go Years

The last phase is the no-go years. During this phase, the person doesn’t do much of anything.

The time you spend in these phases determines how likely you are to run out of money.

Are you at risk of outliving your money?

A man aged 65 has a 40% chance of living beyond age 85. If a husband and wife are both 65, there is a 72% chance that one spouse will live beyond age 85.

The longer you live, the more money you need to avoid running out of money and dying broke.

Factors that impact your risk of outliving your money include:

Healthcare costs
Life expectancy
Long-term care cost
Social Security benefits
Waiting to take benefits until your full retirement age
Personal wealth or investment portfolio
Pension plan
The amount of money you want to leave your legacy (kids, charities, etc.)

How much will you need in retirement?

You can use a retirement calculator to see how much monthly income you need in retirement to avoid running out of money. For example, you may want 90% to 125% of your working income.

On the other hand, you may only need 50% of your pre-retirement income. Planning for 70% to 80% of a person’s pre-retirement income is common. And this can work because some people may not have as many expenses in retirement while others have a lot.

Some retirees spend their time buying clothes, shoes, makeup, golf attire, etc.

Others may spend their money eating out, traveling, and entertaining their family and friends.

Some have fewer transportation expenses because they are driving less. They may downsize their house or rent an apartment to use the equity in their home for their retirement.

The amount of assets you accumulate, the income you generate from your investments, and how much money you spend will determine your risk of outliving your money.

When should you retire?

When planning for retirement, there are several factors you should consider to ensure a financially secure and fulfilling retirement. Here are some important factors to consider:

Financial readiness

Evaluate your financial situation, including your savings, investments, pension plans, and any other sources of income. Develop a realistic retirement budget. Consider consulting with a financial advisor to assess your readiness for retirement.

Retirement goals

Determine your desired lifestyle during retirement. Consider factors such as where you want to live, whether you plan to travel, engage in hobbies, or pursue other interests. Having clear goals can help you estimate the financial resources required.

Healthcare expenses

You must factor in the rising cost of health care because healthcare costs tend to increase with age. Evaluate your health insurance coverage and consider the potential expenses associated with your healthcare. Examples include medical treatments, long-term care, prescription drugs, and insurance premiums. Understand the coverage provided by Medicare or any other applicable health insurance plans.

Social security benefits

Understand how Social Security benefits work and when it’s optimal for you to start claiming them. You can request a free social security projection from the Social Security Administration. The timing of when you begin receiving benefits can significantly impact your overall retirement income.

Waiting until age 70 to take your Social Security allows you to get the maximum amount of Social Security.

People with health issues or who have not saved enough may need and want to take their Social Security before 70.

Consider purchasing a life insurance policy to cover the loss of income when the first partner dies, and the survivor loses part of their retirement income.

Debt management

Assess your outstanding debts and aim to pay off high-interest debts, such as credit card balances or loans, before retirement. Minimizing debt burden can provide financial stability during retirement.

Inflation and cost of living

Consider the impact of inflation on your retirement income. Over time, the cost of goods and services rises, eroding your purchasing power. Account for inflation when estimating your future expenses.

Over the last 30 years, inflation has increased by an average of 3.8% yearly. For that reason, it is essential that a portion of your money must hedge against inflation.

Retirement accounts and investments

Review your retirement accounts, such as 401(k), individual retirement accounts (IRAs), and other investments. Determine the best strategy for withdrawing funds during retirement to optimize tax benefits and sustain your income throughout your retirement years.

Estate planning

Develop an estate plan including a trust, will, power of attorney, healthcare directive, personal representative, or ILIT (Irrevocable Life Insurance Trust).

Consider consulting an estate planning attorney to ensure your assets are distributed according to your wishes. This also helps to minimize potential tax implications.

Social and emotional factors

Retirement is not solely about finances. Consider the social and emotional aspects of retirement as well. Plan how you will maintain social connections, engage in meaningful activities, and find purpose during this new phase of life.

Longevity

Consider your life expectancy and the potential length of your retirement. Ensure that your financial resources are sufficient to support you throughout your retirement years, even if you live longer than expected.

It’s important to remember that retirement planning is a personalized process, and these factors may vary based on individual circumstances.

Hiring a financial professional can help you develop a retirement plan and ensure you do not run out of money.

Other insights to avoid outliving your money

Work part-time after retiring

This allows you to spend less of your savings and gives your money time to grow.

Retire one year later than you planned.

This will help to stretch your money further in retirement.

Plan for 30 years in retirement.

Many experts believe 30 years in retirement is a good rule of thumb.

Max out your contributions to retirement accounts.

If you have questions or want to determine how much money you need to retire, click here:

Whatever the percentage you start saving, increase it each year until you max it out.

Determine your 401(k) company match and invest at least that amount.

This is often called free money since the company pays for all matched money.

Consider investing in a Roth or traditional IRA.

Both traditional and Roth IRAs can be great options for retirement. Because tax laws constantly change, always check with a qualified financial advisor or tax expert.

Consider investing in a guaranteed annuity so you can avoid outliving your money.

A guaranteed annuity helps to ensure you do not run out of money.

Remember that the tax on Social Security is based on income.

A person may have to pay tax on up to 85% of their Social Security benefit. For this reason, it is imperative to create a plan before you elect your benefit.

Hire an advisor and complete a financial plan before you retire.

It is essential to know how much you need to retire. Calculating and reviewing your numbers is helpful to ensure you are on target.

Start saving as soon as possible.

It is good to save for retirement as soon as possible to meet your goals and stay on track.

Purchase a long-term care insurance policy.

The cost of long-term care can ruin most well-created plans. For this reason, consider purchasing a long-term care insurance policy to cover expenses if you need coverage.

Conclusion – “Longevity and the Risk of Outliving Your Money”

As you age, continue to evaluate and monitor your plan. There are so many factors that impact the quality of your retirement. And one thing every expert will agree with – there is nothing fun about running out of money in retirement.

If you don’t believe this, try this temporary retirement experience. First, rent a one-bedroom apartment in an unsafe area (This is what broke, retired people must do!).

Next, buy three months of tuna fish and ramen noodles. Sorry, but you can’t afford healthy, organic food or quality water.

While this may seem absurd, simply imagining what it is like to live in poverty is enough to get you to start saving today. And that is our wish for you!

Until our next episode, take one action that will help you create a secure financial future and retirement you love.

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