Don’t let long life be ‘bum luck’

The Bakersfield Californian
March 25, 2011

How long can I live? That seemed to be a question the guy should be asking his doctor, not his financial planner.

But across my desk sat a 49-year-old client, who wanted to know just how long he could live until his retirement savings – bank deposits, 401k investments and Social Security — would run out. He wanted to know how long it would be before he was broke, eating dog food and living in a cardboard hut.

I thought the guy was being over-dramatic and pessimistic about his financial future. But he went on to explain: He is the youngest in a family of four. His oldest brother is a 56-year-old boomer nearing retirement.

My client is in what is called the “junior boomer” category. He is in the back of the boomer pack, rather than in the leading edge of a generation born between 1946 and 1964.

For years, he said his elderly, widowed mother regularly would sit him down and ask him to go over her finances. She would ask: How long can I live? How long will my money last?

With a shrug of his shoulder and a begrudging laugh, he patronized his mother by doing the math. At the rate she was spending her savings and his father’s pension, he initially figured she could live to be 150 years old. But as her health failed and she moved into an assisted-living facility, the estimate kept rolling back – 100 years, then 90 years. As it turned out, his mother died of injuries received in a fall when she was in her mid-80s.

But now that my client’s retirement is just a few years away, his mother’s question didn’t seem that ridiculous. He is now wondering: How long can I live on the money I am saving for retirement?

My answer: That depends on a lot of factors, including how long you will live.

Using 2000 U.S. Census data, the Society of Actuaries calculated that a man age 65 in that year would have an “average” life expectancy of 85. The average life expectancy for a 65-year-old woman would be 88. Keep in mind that “average” means half could live fewer years and half could live more years.

If you saved for the “average,” you could get “lucky” – depending on your definition of luck. You could outlive your retirement savings. Some might define that as “bum luck,” meaning that’s how they will have to live when they run out of money.

No one really knows how long they will live. Diseases and accidents can end lives early. Good genes and luck can extend lives to the outer limits. As a rule of thumb, you should expect your retirement savings to cover at least a 30-year period.

But while life expectancy can be unpredictable, so can the returns on investments. Consider 2008 and the market plunge that devastated retirement savings. With that plunge came the worst recession this nation has known since the Great Depression.

Many people, including boomers nearing retirement, lost their jobs. They lost the ability to set aside money for retirement. Some made withdrawals from retirement accounts to cover living expenses.

It is now time to “recover.” Making up for lost time and investment value will not be easy. It will require discipline and planning.

Some tips:

  • Evaluate your assets and potential. To help with this evaluation, go online to the Bankrate.com retirement planning calculator. The options on this website may seem overwhelming, but you can play with the categories and get some idea about how much you will need to save and invest to finance your retirement.
  • Seek professional advice. Go to your accountant, attorney or financial planner for help in developing a savings and investment strategy. There are many options. New savings plans seem to crop up every day.
  • Develop a plan that is flexible. Your life circumstances change, as do economic factors. A good plan today may not work tomorrow. You must have the ability and willingness to tweak your retirement plan.
  • Accept that likely you will not be able to “retire early.” In fact, if your health permits, you may want and need to work during your retirement. You may not want to keep working at your same stress-filled job. Instead, you may want to turn a hobby into a money-maker, or find a part time job to stretch your retirement savings. Begin preparing for an “encore career.”
  • Consider how much money you will need and the standard of living you wish to maintain in retirement. Many retirement savings accounts are tax-deferred. They require minimum withdrawals and the payment of taxes when the “saver” reaches 70 ½ years of age. Develop a strategy that will allow sufficient withdrawals that carry the minimum tax burden.
  • Take care of your health. A sound retirement savings plan should not be based on the preposition that you will die early, before your money runs out. Stretch out the duration and quality of your life, and your savings for a rewarding retirement.