Longevity: (N) a long individual life; great duration of individual life
So here is the question of the day, class: How much will your longevity cost you? In a recent article in the Wall Street Journal, Charles Passy attempts to answer this question for both the individual and the financial industry as a whole. His answer for both groups is frankly daunting. Here are two quotes from his article that sum up his answers:
For the retirement and financial sector, here is the prognosis:
"Leaving aside the matter of Social Security -- a 14-digit-dollar question of its own -- the pool of money tied to the death calculus is somewhere on the order of $27 trillion."
And for the individual....
"...to prepare for four additional years of life span over current projections, someone who's 50 years old now would need close to $160,000 beyond his or her current retirement savings to maintain a modest lifestyle, experts say. And increasing a nest egg by that much, assuming historical rates of return and inflation, could mean squirreling away an additional $2,500 a year."
There is an additional point to be discussed in this "positive" prognosis of longer life, that is the quality of that longer life. Simply put, not only are we going to be living longer, but we are going to be living better. While this is a great thing, what does it mean for our budget? It will certainly affect our activity level and thus how much we spend. Whereas our parents and grandparents may have spent the majority of their golden years at home reading, the next generations of retirees are going to be out and about; travelling, boating, dining, hiking, and doing all of those other things that we never got a chance to do while we were working. Bad news: all of those great activities cost a lot more that a subscription to the newspaper delivered at home. This means that your initial estimates of how much income you may need later in life may be lower than what you will actually require.
Okay, so obviously securing enough savings for these many golden years may seem like a big, if not impossible task to accomplish, especially given the current investing climate. What can we do to counteract our own health and longevity? First, we need to get an accurate calculation of how much income we require. As we already discussed, this is going to vary depending on our lifestyle. Once we have this number in mind, according to Dr. Porkorski, we have to throw out our the general calculation of how long we will live, because statistics say that we are going to live much longer than the current government calculations tell us. Now, how do we assure that we have that level of income for as long as we might live?
Passy describes a few products from the Hartford that provide 8 years of guaranteed income after the age of 90, however, there are several products that will actually provide an individual with income for their entire lifetime after they retire. In a way, you can think of these Lifetime Income Benefit Riders or LIBR as a pension plan that you pay for. This is probably the easiest and safest way to guarantee that you can maintain a retirement income for as long as you need it. If you would like details on this class of investment product, give us a call and we would love to discuss the plethora of options available to fund your long and fruitful retirement!