You're Going to Live Past 90. Congrats! Here’s How to Pay For It.
Advances in medicine mean that reaching your nineties and beyond is more realistic than ever. Start preparing now to avoid running out of money.
If you're forty years old and think that you don’t have to worry about saving for your future financial security, then you are a living example of the proverb “a fool and his money.” The more carelessly you part with it today, the less you'll have when you really need it. And the smart money is with those who realize that they may be living a 100-year-life and start preparing as early as possible.
Today’s life expectancies hover just below eighty, and if you reach the milestone of seventy they jump to the mid eighties. Due to advances in medicine and healthier lifestyles, reaching your nineties or even 100 is more realistic than ever. How do you ensure that you don’t run out of money? The answer is to start saving more now and plan to work longer.
If you are in your early sixties and have just decided that you want to stop working, here’s an exercise. On a quiet Saturday morning, sit down to review how much money you have accumulated in savings, your 401(k), a possible pension payment, and the calculation of the social security check that you hope to start collecting at age sixty-two, the first year you're eligible. If you’re like many people, you'll probably break into a cold sweat when you look at the numbers, realizing the total isn't enough to fund the lifestyle that you hope to live. When you figure that this money will have to last you another 20 or 30 or more years, you will ask yourself, “Why didn’t I save more earlier?”
According to Anne Lester, former head of retirement solutions for J.P. Morgan Asset Management and author of Your Best Financial Life, the sooner you think about this the better. Lester points out that at age twenty-one if you invested $5,000 in a retirement account and never contributed another cent, you would have more than $100,000 on your sixty-fifth birthday (assuming a 7 percent per year return). But if you saved $5,000 every year during that span, you’d have $1.5 million.
As she likes to point out, the magic of compound returns is the single greatest weapon in your financial arsenal.
For those who are already in their sixties, many are finding that they are in a big game of catch-up. The Alliance for Lifetime Income is a non-profit that educates Americans about the value and importance of having protected lifetime income in retirement. According to ALI’s Cyrus Bamji, chief strategy and communications officer, one of their recent studies revealed that almost half of those between sixty-one and sixty-five say that they don’t think that their savings will last their lifetimes. Nearly one third are not confident that they will have enough income to cover basic expenses. What isn’t helping is that almost half said that they are financially supporting children eighteen to twenty-one and 30 percent are supporting adult children twenty-two to thirty, all from their retirement funds.
Hopefully, they are also teaching these young adults to focus on the importance of financial literacy, as they are even more likely to live into their nineties or older. Today’s five-year-old has a 50 percent chance to live to 100, according to the Stanford Center on Longevity.
Greg Scheinman, a fifty-one-year-old Houston based serial entrepreneur, who is a married father of two sons, learned an important financial lesson early in his life. “When I was seventeen, my father died. I got a real dose of how strong financial planning was able to satisfy my family’s financial needs,” he says.
Scheinman and his family live in what he calls a small, high-quality home. The mortgage is paid off. His kids' 529 plans are paid in full, and he has ample life insurance and disability. Scheinman's advance planning has allowed him to save more for what he calls his next twenty years of an active life filled with adventure travel and more. It's also given him the ability to self-fund his latest business venture as the founder and face of Midlife Male Ventures, which helps men maximize middle age through his best-selling book, podcast, newsletter, and coaching. “I wish I’d started investing earlier,” says Scheinman. “I didn’t fully appreciate the power of compounding when I was in my twenties. I’ve been fortunate to catch up. Now, I’ve made sue that my kids have gotten that lesson in their teenage years.”
Chris Shirley, a former corporate communications director who retired from his full-time job at fifty-nine to pursue being a novelist is a textbook example of how to prepare yourself for a healthy financial future. “I started saving in my early twenties. My parents always instilled in me the importance of saving and living debt-free,” says Shirley.
In one of his early jobs, for two years, he traveled most of the time, living in corporate housing, which allowed him to have no rent costs, banking the money instead. When he went back to graduate school to earn an MBA at twenty-eight, he made sure that he paid down his loans as fast as he could to continue his debt free life. His other tip? He has lived on his salary, putting most of his bonuses in investments. He also maxed out his 401(k) contributions and his health savings account (HSA), as well as shares all of his living costs with his live-in partner. Shirley’s financial planner has assured him that he can fund his lifestyle well into his nineties, a thirty-plus year run of financial well-being.
Overall, however, the numbers are pretty sobering. According to Northwestern Mutual’s 2023 Planning & Progress Study, the average American has just $65,100 in savings, excluding retirement assets. Household savings rates are only 3.8% a year, according to the Bureau of Economic Analysis, not adding much to the figure.
Calculate that the average U.S. retirement account is $113,000 and the average social security payment is $1,767.03 and often times the math doesn’t add up. While this doesn’t include intangible assets like real estate or other assets that can be tapped into, it should raise some alarms.
With the over-sixty-five U.S. population at 62 million and growing (10,000 people a day are turning sixty-five), there is a looming crisis around financial security for many people. According to Bamji, only 24 percent of people at age sixty-five have a traditional pension and many of them did not have the benefit of 401(k)s that didn’t exist in their younger lives.
It’s also a global problem. According to a report from the World Economic Forum called “Longevity Economy Principles: The Foundation for a Financially Resilient Future,” it is estimated that the current number of slightly more than 1 billion people above 60 is projected to double to over 2 billion by 2050. With growing life expectancies around the world, the report stated that people worldwide could risk outliving their retirement savings by between eight and up to twenty years.
What are some of the ways that you can start to build your own effective “wealthspan” plan?
The first step is to calculate what you think you will need in terms of your individual cash flow needs to fund a long life. Much of that depends on your current debt, lifestyle choices, as well as your health scenario, family obligations and more.
Ignore blaring headlines that tell you how much you will need to retire comfortably, as it will only add to unnecessary anxiety. Instead, spend the time to identify your financial numbers. Work on your anticipated monthly costs starting with basics and project additional needs from there.
Andre Robinson is the president at Voya Financial Advisors, part of Voya Financial, a company that focuses on workplace benefits and retirement savings. His firm has done extensive research on how his clients are thinking about their financial planning. Says Robinson: “In one of our client surveys, participants believe that they will need 65 percent of their current income to live comfortably. Almost one-third believe that they will need 80 percent or more.” The average age of participants that start saving for retirement is now thirty, says Robinson, and only four-in-ten said that they actually have a planned age for retirement.
Jean Chatzky, CEO of Her Money.com and founder of FinanceFixx.com, a pre-retirement check- up platform, agrees that it is a very individual decision based on a combination of your needs, savings rate and how you want to live in retirement. Based on your income, she suggests that aiming to be able to replace 80 to 85 percent of your final pre-retirement income is a good starting point. “Another way to look at it is to take a multiple of 10 times your final income in your sixties to determine your goal,” she said.
With longer lives, many believe that planning to work longer or beyond the traditional retirement age may be necessary and is a great way to build your nest egg, especially if you live into your nineties or beyond.
Jill Schlesinger, CBS News business analyst and author of The Great Money Reset: Change Your Work, Change Your Wealth, Change Your Life, says, “While you may have to work longer, you may not necessarily have to do the same thing. Many folks in their forties find that they can transition to a different career or job in their fifties and sixties, one that will allow them to reach their ultimate goals, with a little less stress.”
Chatzky suggests that planning to work into your late sixties with the benefit of putting money into your retirement account and letting it continue to grow is a smart approach.
Most experts agree that delaying social security for as long as possible will be a long -term benefit for your stream of income.
Go to your social security retirement calculator to see the added benefit to waiting til seventy for your payments. While some people say that they are giving up earlier income, the calculated risk is that if you're healthy, you may live into your nineties. It’s a good decision to wait, especially since your monthly payment will almost double between sixty-two and seventy, according to Social Security Administration projections.
Martin Gruber, a former private wealth manager, and now retired at fifty-nine, advocates for deferring IRA withdrawals for as long as possible, allowing your money to continue to grow. The current Required Minimum Distribution (RMD) that IRA and retirement plan owners must withdraw annually is when those individual reaches age seventy-two. The amount can be calculated with online tools to help determine your amount. “A balanced portfolio should return 6 to 8 percent a year. If your mortgage is below that, keep it and put more money into your investments,” says Gruber.
Current thinking is that you should use the 4 percent rule for drawing down from your assets based on your needs, however many believe that this is a guideline not a rule, as your assets go up and down based on the equities markets. If you have a stock portfolio or IRA, you understand how this can affect your net worth. Recalibrate your own savings plan now, regardless of your age.
Lester suggests retirement savings should be 10 to 15 percent. If you are saving for many extras, it should be higher. “The formula that I use in my book is for the under-forty crowd to try and save 40% of their discretionary income,” says Lester, adding that this is after all expenses like rent, debt, food, etc.
Schlesinger advises to hire a certified financial planner to help you figure out your plan. You have a primary care physician to help you with your healthspan—you should do the same for your wealthspan.
Mark Johnsen, CEO and founder of Wealth Architects, a Mountain View, Calif., wealth management company agrees. “The internet and AI tools help us to accumulate information but that is very different than the wisdom that comes through true knowledge,” he says, adding that his firm focuses on how someone might envision an extra twenty-five years of longevity in building a fulfilling life beyond just money.
Aside from guiding you in your investments and your asset allocation in stock, bonds, treasuries and more, your advisor can help in calculating your cash-flow analysis.
Bank of America’s Private Wealth group works with clients to help them with anticipated lifestyle needs, as well as legacy wishes for philanthropy or passing wealth on to next generations, according to Kristen Hill, a Managing Director and Market Executive at the Private Bank. As part of helping to determine cash flow needs and how long your money will last for an anticipated long life, BOA uses an approach called a stochastic analysis. Explains Hill: “The model includes 10,000 what if scenarios based on the variability of investment returns and life expectancies into what was once a linear financial plan. This tool creates a dynamic way to look at a variety of outcomes for longterm financial security.”
Ultimately, it is up to each individual, couple or family to decide how much money they might need to live to 100. While there are lots of decisions to make, there is one that is the simplest: Know your number and work towards it. The sooner the better.
Michael Clinton is the special media advisor to the CEO of the Hearst Corporation and author of ROAR into the second half of your life.
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