retirement planning tallahassee

Underestimating Life Expectancy

by John Curry

It’s been said that every ten seconds a baby boomer turns age sixty. This started in January 2006. Now, I don’t know if it’s every ten seconds, twenty seconds, or thirty seconds. The point is, the baby boomers are turning age sixty and now, of course, sixty-four into 2011. This is going to happen for the next eighteen years. The baby boomers are going into the retirement phase of their lives. This will have tremendous consequences for all of us. Most people will not be prepared for a secure retirement. They will have to continue working longer than they thought. Why is this? I think it’s because people made some mistakes along the way, and what I’m going to do in today’s session is to talk about a mistake that I call underestimating life expectancy.

We’re living longer as a society. Why does that matter? Well, we could outlive our money. In 1900, for example, life expectancy was forty-seven years. Forty-seven years! Currently, it is seventy-five years for a male and eighty years for a female. Just think about this. In this century, we have seen life expectancy increase so greatly. Demographers have been warning us for years about decreasing birth rates. The result is, we have fewer people in the workforce following the baby boomers. Many people will live to be older than the mortality tables suggest, because remember, the mortality tables are averages. This increased longevity is going to require better planning.

Think about this for a minute. If we live twenty to thirty years into retirement, we will need an income stream we can never outlive with increases to help offset inflation. Today’s retirees can no longer just put their investments into some conservative investment program and ignore it. Inflation will steal from them. It also means we can’t be too aggressive with our retirement investments, because we could end up losing money due to the stock market downturns and the real estate downturns that we’ve seen. Think back to 2000, 2001, 2002, and as recently as 2008 with the financial crisis and the recession, 2009, 2010, more foreclosures than we’ve ever seen, and we’re seeing people’s 401(k) gradually coming back. But when you’re ready to retire, can you really afford a thirty, forty, or fifty percent drop in your retirement assets?

You see, we have to find that delicate balance between too much risk and being too conservative if we are to assure ourselves that we will not run out of money in retirement. It’s up to you to design your retirement in such a way that you have a guaranteed lifetime income no matter what other resources you have such as Social Security, a pension plan, a 401(k). In fact, I advise my clients to take as much as half of their assets and structure it in a way to have a guaranteed income for life.

I hope that you will prepare for your secure retirement.

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