Al and Debbie, in Montana, are worried about life expectancy and how it impacts their retirement plan?
How important is it to factor my life expectancy into my retirement plan?
- Everyone’s situation is different, and their plan should be custom and unique to them.
- Depending on your family genetics, you could plan for a longer or shorter life expectancy.
- You could have a number of different strategies to address the impacts of a long life in retirement.
- The fundamental principal is that the longer you live the more money you will need to last in retirement.
What are the different ways that my life expectancy could impact my plan?
- People in retirement can face major challenges from longevity in a number of different areas.
- The longer you live, the longer your money will have to last.
- The longer you live, the more impacted you could be from inflation or the decreasing value of a dollar.
- Also, you will have a greater likelihood of needing nursing home care which can be a huge cost.
What advice does Ryan have for people looking to protect themselves against running out of money in retirement?
- Make sure that you work with a specialist that can guide you on the different strategies to address longevity risk.
- There are certain investments and annuities that are designed to help protect against living too long, and all of the issues that could arise from it.
- Make sure your plan is designed so that if you out live your projected life expectancy, you will still have adequate funds to support yourself in retirement
- People are living longer and longer, so it would be advisable to overestimate your life expectancy.
On this edition of SFP question and answer, Ryan receives a question regarding life expectancy and how that fits into your retirement plan, from Elle and Debbie in Montana. Elle and Debbie write Ryan: “we are in the process of creating a retirement plan, but we do not know how to plan for life expectancy. When calculating a retirement plan, how important is it to factor in Life expectancy?”
Ryan gets questions around life expectancy quite often from his clients, who are trying to prepare for retirement. This is a crucial aspect to a retirement plan. Your life expectancy is the foundation to which all the planning will take place.
Obviously the longer you live, the more money you will need to last throughout your retirement. This is why it is so critical for people who are getting ready to retire, to work with a retirement planer who specializes in retirement strategies that can take into consideration different life expectancies, and the different solutions that it takes to offset some of the potential issues that arrive with longer than projected life expectancy.
There are some tools that can pay a client a guaranteed income stream regardless of how long they live, similar to a pension payment or a Social Security payment. Although these are not Social Security or pensions they are similar in that the payment stream does not disappear or stop until the individual dies.
The other factor to consider when discussing life expectancy is that the longer someone lives the more susceptible they are to bearing the burdens of inflation. As Ryan says a dollar today does not buy what it used to, so the longer we live the more we will be impacted by the rise in inflation. That will directly impact our purchasing power and our standard of living.
Nursing home care might be the biggest issue that can arise with a longer life expectancy. The longer we’re alive the greater the chances that we will need to spend time in a nursing home or rehab facility. As we all know these can be extremely expensive cost for us to beer. When you take all of this into consideration you realize that it is of the upmost importance to create a plan that factors in all of these risks to a happy healthy retirement.