Longevity Risk

Longevity Risk

The Prelude:

We’re living longer than ever, and of course, that’s a good thing. However, longevity presents its own challenges. John explains.

The Bass Lines:

We Want To Live Longer. 

  • [1:03] – We’re living longer, and we want to live longer. In fact, there are companies dedicated to raising the average life expectancy closer toward one hundred years. However, most of our listeners are afraid of running out of money before they die. The goal is indeed to live longer, but you have to have the resources to get you there.

Longevity Is A Risk Multiplier.

  • [2:56] Longevity tends to exacerbate or expose any cracks in your retirement plan. It makes obvious any poor planning you’ve done along the way. Let’s say you didn’t account for inflation in retirement, but you planned to live on about $5,000 a month. By the time you’re in your late 80s, you’re probably going to need about $8,000 a month to have the same amount of buying power. In that instance, suddenly, your age is starting to show…in those areas of your financial life of course.

How Effectively Are You Addressing Longevity? 

  • [4:36] The Average Joe has failed to address longevity well. If you have addressed it well, it’s probably by accident. Perhaps you have a lifetime pension and Social Security. In that case, you’re probably going to have some portion of the income you need. However, if you don’t have a pension, you’re going to need a well-developed income plan that accounts for inflation and taxes as well.

A Recent Example.

  • [5:55] – We had a client to visit us. They had a portfolio of about a million dollars, and they wanted about $9,000 a month in gross income in retirement. They also had a small pension, and they were withdrawing Social Security. All-together, these income streams created about $4,000 a month. As you can see, we still needed to get them about $5,000 a month. We took one piece of their portfolio and put it into an annuity that would pay them a lifetime income. We then put another chunk in a market-based portfolio to create dividends and interest. However, we made a rule never to ever sell anything. The idea was to take the dividends, but not the shares. In other words, we wanted them to live off of the eggs, not the chicken. Finally, we took the rest of the money and put it into a “growth bucket” in the market. Combined, these income streams would get this client to their $9,000 a month lifestyle. We also raised their base of income from $4,000 a month to about $6,000 a month. This made them more comfortable in the event the stock market were to take a dip.

The Crescendo:

The Encore:

The host: John Stillman – Contact – Book – Call: 919-391-3446