Retirement Roadmap

Living Too Long: The Financial Risk

• Mark Fricks • Season 3 • Episode 20

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Longevity risk presents a significant challenge for retirees, with medical advancements potentially extending lifespans and creating decades-long retirements that require careful financial planning.

• Running out of money in retirement is often feared more than death itself
• Life expectancy now averages 79.5 years for men and 82 years for women
• Most retirees now believe they need about $1.5 million to retire comfortably
• Estimate your personal timeline based on health, family history, and lifestyle
• Consider delaying Social Security to age 70 for up to 77% higher payments
• Explore appropriate annuities for guaranteed lifetime income
• Consider adopting a flexible withdrawal strategy with different "buckets" for different timeframes
• Consider how market volatility impacts your withdrawal strategy
• Plan for long-term care before you may need it, with 70% of people over 65 likely needing care
• Average nursing home costs can exceed $8,669 per month nationally
• Explore hybrid long-term care and life insurance options
• Consider part-time work or phased retirement for both financial and emotional transition

Schedule a complimentary consultation at MasterPlanRetire.com or call 770-980-9262.

Have a topic or question you'd like Mark and Evan to address in a future episode? Email us at info@masterplanretire.com or call 770-980-9262.

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Evan:

Are you at risk of outliving your money? Hi folks, welcome back and thank you for joining us. Welcome to Master Plan Retirement's Retirement Roadmap. My name is Evan. With me, as always, retirement planner Mark Fricks. Mark, we're going to talk about longevity risk today.

Mark:

Longevity risk. That means being too tall.

Evan:

That's exactly right. Too tall. The doorways are too short.

Mark:

I don't have that problem.

Evan:

Yeah, so it's actually a huge.

Evan:

You know, we talk about income all the time in retirement. We talk about tax planning, all this other stuff. But longevity risk plays into it all, because there's a possibility you could mess up and live too long.

Mark:

It is, and we actually had clients in yesterday fairly new clients and we were talking about longevity and your family, health and things like that, and they were like we think 90, 90, whatever. And then we just started having the conversation about technology, medical technology especially. And how many years ago was it where, if you had a heart attack, you were in the hospital for 10 days? Now, if they don't get you out of the bed the next morning and you're gone, it's like, well, you know what went wrong. We've got hips that can be replaced with a very small incision now going, I think, in from the front, if I remember correctly, and people are out walking the next day. But also, I've done a lot of research on this lately, but the last I read, they're researching and hopefully getting close to being able to clone an organ, your own organ from your DNA, which means it would not be rejected. Imagine growing a new liver, a new heart, whatever in a lab and then going in, they're, putting it in and you walk out.

Mark:

And so I've read that scientists say that the human body is designed to last 120 years, except for mobility. Well, most of mobility has been solved, of course. Now we have the memory issues and hopefully we're getting closer to that as well, and I'm sure we're going to talk a lot about all of this as we get into today's show. But I used to, in a class I taught, I would start the class by saying I want everyone to write down what age you think you'll live to, and then I would spend about 10 minutes going over research, going over advancements, and I'd say now, write down your age. And everybody would write down an age like 10, 15 years further down the road. So who knows what's going to happen over the coming years? Who knows what's going to happen in our lives personally? I mean, we could check out tomorrow, right, but you also have to plan for the longevity which we'll talk about today.

Evan:

Yeah, and these clients we spoke to yesterday actually, kind of informed, going this direction for today's episode. We asked them their family history, what their health is, things like that, and they're in a position where they don't really have heirs other than each other. They want their money to take care of the other one, whoever is the survivor.

Mark:

And then spend it.

Evan:

And then spend it and it's like, if you, what do you say? Rather tongue-in-cheek, but still, if you can tell me you're a COD, I'll make sure you spend all your dollars right to that date. If you know your checkout date, we'll make sure it's down to zero at that point.

Mark:

But nobody's ever taken me up on that.

Mark:

I don't know if it's something I want to put money on. So if you just sign this paper that way, I'm not liable if you live too long right.

Evan:

But it's very real. And then some people do have more heirs that they want to take care of. It's difficult when, maybe you're 85, 90 or whatever that end-of-life age and if you run out of money it's a really hard time to go back to work.

Mark:

Yeah, and that's probably the biggest fear we see when people come in here is outliving their money. I mean, I would imagine if we took a survey of folks listening today it would be 9 out of 10 would say running out of money. And it doesn't really matter how much money you have.

Evan:

Well you're absolutely right. Many retirees fear outliving their money more than death itself. So, like you said, longer life expectancies, now averaging, I didn't realize it was this high now, averaging nearly 79 1⁄2 years for men and 82 for women.

Mark:

I didn't realize we'd gotten that high. To be honest with you, financial planning has got to account for decades in retirement. Well, if you've got a couple one, it's almost always inevitable that one will live Outlive the other. I mean, we normally don't die at the same time and many times it's another 10, 15 years. So we have to take into account the age of the couple. So you're talking about two people and again, those numbers you just gave, if you were to Google life expectancy for a 60-year-old, it would be another five to seven years Because if you made it that far, you're more likely to live that much longer because you have child mortality rates, you have just growing up and things that can happen.

Mark:

And so now you're looking into the 80s and again, that's just the average. That's not saying that's it. That's saying that's the average person. Do you take care of yourself? That's taking into account lower class that tend to not eat as well. That takes into account people that don't exercise, people that smoke, people that you know, all these bad habits. That's all of us. So you start thinking about yourself and how you take care of yourself. Hopefully you do and what you do to you know, to maintain a good lifestyle, add years.

Evan:

Yeah, and then that's step one. You have to estimate your personal timeline. I mean, there are also places you know your health, you know your family history. You can be honest about that stuff. But there are also online resources.

Mark:

Estimators, or whatever.

Evan:

There's a social security life estimator or expectancy calculator and the Blue Zones true vitality test. Actually you know the spots, the Blue Zones where people live longer. That's true, but you've got to understand your family history, your habits, lifestyle choices. Obviously all of that plays into longevity, but know your number. So this is a general. This is a very broad, blanket generalization. But most retirees now believe they'll need around 1.5 million to retire comfortably and that's a 15% increase from last year. That's way past inflation.

Mark:

Wow, I wonder where that came from or why. It may be because of the way the economy is.

Mark:

I think that's part of it, even though inflation was not that high. But still, you start thinking about where you're at now and we were talking about this the other day with some clients as well is, behaviorally speaking, the way people think is where you're at now and we were talking about this the other day with some clients as well as is, behaviorally speaking, the way people think is where you're at now is where you're always going to be, so related to the market. If the market's bad now, oh, it's always going to be bad. If the market's great, oh, it's always going to climb. That also applies in your personal life, too. Where you're at right now.

Mark:

Right now, I'm really struggling. I'm having to clip coupons, or so I'm going to need more money, or maybe things are really going great hey, I don't need as much. But right now, with the way the economy is, I think people are thinking a little more negative from that standpoint. So, and and and do you know? I appreciate you saying that's a very general statement.

Mark:

We've got folks that are not going to run out of money based on everything we've done, and they have half a million dollars. So how much are you spending? Where are you living? We've got people that are maybe living with their kids in the basement, nice little apartment suite. Other people have two homes, so it's a very broad statement, but something we deal with every day. It's so critical to know what kind of money you need and how is it going to last and what strategies can we take to make sure it does last. And that's one of the fun parts, I think, of our job. It really is coming up with these designs, these strategic plans that take into account all the things that can happen and still have an assurance that money is going to last a lifetime.

Evan:

Yeah right, and you know, like everything else, we typically start with income. But a general rule to consider for yourself again, another broad, blanket statement but you've got the 80% income rule. That's just a starting point. So you're aiming to replace about 80% of your pre-retirement income, but you've got to adjust it based on your goals, your health potential for a long life, especially and this is a big one if you're planning on retiring early.

Mark:

Yeah, and so personally, what I would do is I would start with 100%, but make sure it's 100% of what you bring home, Because some of what you make you probably put into your 401k or thrift savings plan or whatever. Part of what you make may go to other things, maybe extra life insurance at work. Part of what you make may go to other things, maybe extra life insurance at work. So look at what comes in every month or year or whatever and say that's what I want coming in in retirement.

Evan:

I'd rather guess high than low, Especially if you're early because you might not have health insurance so you're 65. There's so many extra factors playing in to the equation when you retire earlier.

Mark:

Yeah, and a lot of people say, well, my house will be paid for when I'm 65. But what we're finding is a lot of people are downsizing and they're not getting enough money out of their current house to downsize, so to speak. Right, If you're listening on the radio I'm using air quotes, by the way so downsizing doesn't necessarily mean you're spending less money, and maybe you want to live in a place that's a little more desirable for seniors. Maybe it's a mountain town or down in Florida.

Evan:

Or even a 55 and up community. Those aren't cheap.

Mark:

Those are not cheap. And just the homeowner's fees. I'm hearing like $400 a month, $600 a month, $900 a month just for the homeowner association fees, so you can get all these extra things. And so I would use 100% and say you say I'm always going to have a house payment. Hopefully you won't, but go ahead and go with it. Guess high, don't guess low.

Evan:

Well, another point to that. I don't want to get off on too many rabbit trails, but we don't meet too many people who want to take a pay cut in retirement. A lot of people work really hard, save for years and years and years. They want retirement to be their golden years. They want to be that time to cut loose and enjoy and not worry so much, not take a pay cut. So the next step would be to maximize your Social Security strategy. It's a foundational income source in retirement. We've just recently had a Social Security episode. Go check that one out if you haven't seen it yet.

Evan:

Delaying benefits from age 62 to 70 can boost payments up to 77%. You should consider for yourself what works for you. Obviously, if you need the money, you got to turn it on. But considering your lifespan, your history and family, how long you think you're going to live? 30 years is a long time to lock in a lower amount. If you're a couple, consider splitting a strategy like 62 and 70. One takes it earlier, one maybe takes it later, the larger of the two. So that's also a legacy planning strategy. If someone were to pass away with the larger amount, that larger amount gets passed on to the survivor. There are a lot of strategies to consider and again, like everything else we always say, say it's very specific to your case and where you need it to fit in.

Mark:

Yeah, because if you, if you think about working some after retirement, doing something that's fun, you enjoy, uh, you're limited on how much you can make if you turn on social security social security before full retirement age, which for most of you is age 67. So that's got to be taken into account because you'll be penalized. Also, you have to take into account from a standpoint of spousal benefits. Now, this is a Social Security show, okay, episode. But spousal benefits, which is benefits that your spouse would get. If they are getting less than half of yours, or if they don't qualify for Social Security, your spouse can actually get half of yours. Okay, a lot of people don't realize that, but they can't get it until you turn your zone. But also, theirs does not grow anymore after age 67. So I would prefer to go ahead and get the spousal benefits turned down at 67, no more growth left. So what do you do with the other spouse? How old are they? It can really get complicated and you know we do have a certification in social security planning so we can answer those questions for you. Just don't think it's set it and forget it. Hey, let's just turn it on, because I'm retiring this year at 66 and eight months or whatever it might be. Have a plan and maximize that. I mean, we have great software that helps us, but mostly it's our experience, because we know what people say, what they do, where they've been.

Mark:

We've got many, many clients that we've walked through that path of turning on social security, watching how it works. In fact, one of the things I would recommend folks do is visit the website masterplanretirecom. We have a schedule, a meeting button Almost every page has that and our calendar will pop up. You'll get to choose a time for a complimentary discussion about your situation, and it can include social security. You know we've been thinking about turning it on. Should we? Should we not? We can have that discussion right there.

Mark:

Okay, gather enough information to be able to at least give you some guidance and then, if so desired, we can run a series of reports to show all the different areas that could affect what your decision-making, your strategies and that's complimentary too, and so that is so invaluable. People walk away whether you become a client or not, that's not of the utmost importance, it's knowing where you're at, and that way you have a better idea of how to get where you want to be. So, masterplanretirecom, or give us a call, 770-980-9262, and schedule again a time to. We'll start with a chat Zoom chat, face-to-face phone chat, whatever and we'll see where it goes from there. But that is complimentary, so take advantage of that.

Evan:

Yeah, I mean it's obviously. We're a business, we love new clients. It's one of our favorite things. New clients are great, but they are really valuable consultations.

Evan:

You get a 10,000 foot view of your own retirement. You can see your strengths and weaknesses laid out for you. And that's no commitment from you. That's just showing up and speaking to us and we'll run that for you. Take advantage of it. It's really helpful. Another point for longevity risk to consider annuities for guaranteed income. Now, despite mixed opinions, we've actually had our last annuity. Specific episode was probably about a year ago. Might want to do another one, but we know that I don't know. What do you say about 85, 90% of the annuities out there? You wouldn't touch with the 10-foot pole, but the good products are fantastic and they're the most popular financial product right now. Period.

Mark:

Billions of dollars flowing into these, and the reason is is because they give you a lifetime of income. The right ones, Okay, and and that's what we're looking for is is whether I live to be 88 and there's money left over and it goes to my spouse or my heirs, or whether I spend all that annuity money. It still keeps sending payments just like social security, Okay, Maybe even stronger than social security. Well, there's so much flexibility and there are so many different products that can be payments. Just like Social Security, okay, Maybe even stronger than Social Security.

Evan:

Well, there's so much flexibility and there's so many different products that can be designed for different uses Just for the personal use of the person we're working with. Make sure you don't just walk into an insurance agency and say I need an annuity. It needs to be part of a plan, just like anything else that we recommend, anything else we discuss, any portfolio or any strategy. It's all got to work with your overall plan. You can't just throw an annuity out of the wall and hope it'll stick.

Mark:

It'd be like walking into a auto repair shop or auto parts place or whatever and say I need a water pump. What kind of car, I don't care, just give me a water pump. I'll make it fit. I mean that's bad, Okay, don't do that. But I'm pump, I'll make it fit. I mean that's bad, Okay, don't do that. But I'm serious. I've had people walk in. I'll say why did you buy this annuity?

Mark:

"A friend of mine was selling them.

Evan:

"I heard you're supposed to for retirement.

Mark:

Yeah, or read something or whatever, and I'm like, well, this one doesn't really fit your situation. You're also locked in now. You may not. Maybe it's gone. You know some are short, some are long, but don't, yeah, don't let somebody sell it to you. It needs to fit your situation, yeah.

Evan:

There are annuities that have beneficiaries now, so even if it's turned on, the income is streaming, if there's still money left after you pass away that can be passed on to a beneficiary. There are also annuities that the income has the potential to grow with inflation or greater than inflation, which is huge for longevity risk. There are just so many tools. There are long-term care benefit riders that you can put

Mark:

Where your income increases if you have a long-term care need.

Evan:

But again, we talk about this all the time. We don't push product, we push process. We've got to create a strategy, but there are so many options that it can get overwhelming and it has to fit within your plan and they get complicated, I mean.

Mark:

That's why we try to bring it down to the level that these are the four benefits. This is the one or two. Everything has a negative, right. I mean every investment has a negative, everything has a negative. So you weigh the positive with the negative and then you take those positives. How does it fit your situation? How do we negate the negatives and make it perfect for your situation? And many times it might be a solution of two or three different annuities for a client, one's for short-term income, you know, to bridge a gap, maybe until social security or whatever. Then maybe another one kind of laddered, so it starts in, maybe in eight or ten years when a greater need is there. Whatever, I mean, every situation is different, but most of our clients have two, three or four, each one that works a little bit differently, to fill a need.

Evan:

Yeah, and you have to. That brings us to the next point. You need to adopt a flexible withdrawal strategy and really, for us, the greater point is we create an income plan for our clients. You have to know where your money is coming from. We have to have that guaranteed income, which is what annuities can provide, which is what pensions, social Security, the guaranteed income. But you also need to adopt a flexible withdrawal strategy because you also need market money. You also need money that's going to grow. It's the old have to versus hope so money.

Mark:

Yeah, have to money, which is your income. You have to pay the light bill, you have to pay the car payment or whatever, but then your hope. So money is money, that is. I hope we can take a vacation next year. If the market's up, I can take some money out. I need a new roof. Should I do it this year or next year? When the market's up this year, let's take the money out this year and so that's backup money. And so that's why as I think we've said this before in an episode most people have one or two big buckets of money and they're 401K, they're through a savings plan, 403b, and they have one job all these years and that's to grow. You put money in. Hopefully somebody matches it. Market grows over time, but in retirement there are six, seven, eight different jobs that need to be done. You can't do that with one big ball of money.

Evan:

Yeah, and I'm begging you, if you hear nothing else, do not just turn on withdrawals from your market account, from your 401k, from your IRA, unless you have a withdrawal strategy. You need to adjust your withdrawals based on market performance helps preserve your portfolio, providing stability. Flexibility through retirement Diversity within retirement accounts helps provide options in any market. So, for instance, the first half of this year it's real rocky, taking from a moderate to aggressive 401k holding, even more conservative holdings, mutual funds, I mean.

Evan:

if you're locked into those and you can't change your investments more than quarterly or anything else like that, that's not a withdrawal strategy. You're kind of locked into locking in those losses in your account.

Mark:

Let's take the last few months. I call this a sideways market. One day I'd be up 300, one day it's down 400. Imagine if you're getting $1,000 a month from your stock market account for retirement. What day is that coming out? Is it the day the market's down 400 or the day it's up 400? I don't know. You don't know. And that's why you don't want a steady income flow from market money. You want it from stable money, whether it's protected growth or an annuity or whatever. You want that to be stable. You want that to be guaranteed. I don't want to wake up every morning looking at the stock market wondering can I do a withdrawal today, my lot bills do, or whatever, or knowing it's going to come out on the 15th every month. And in the middle of the month you're looking at the market. What's it doing? Because it's coming out in three days. Two days, one day. What kind of retirement is that? How can I just? It would cause me so much stress.

Evan:

Yeah, and you know, and this is, we're just speaking of small pieces. Of a big Of a huge strategy and plan, but you also want to ensure that your different buckets of accounts have different time horizons Because, just as Mark said, if you need money soon, you don't want to pull from a bucket that's super volatile. But that volatile bucket is a really great 10-year bucket. I'm not going to touch that for 10 years. I know in 10 years it's going to be up. Maybe that's my long-term care planning bucket, or something like that.

Mark:

Well, also the money that we do in the market. Of course we have actively managed accounts. They're computer driven algorithms, and so we like different flavors. So our typical client might have three, four, five, six different portfolios. One does great in this kind of market, another one does great in that kind of market, so there's always something that should be up, and because if you look at any market, there's always something making money. 2008, 2009, when the market lost 56%, the S&P gold was up 500%. So most of our clients have a little bit of a gold portfolio, right. So right now I'd say probably two thirds of our portfolios are in positive territory, and the ones that aren't, it's because they're more of a heavy growth bucket. But guess what? Next year they'll probably skyrocket. So again, it's all part of that putting together that income and growth plan.

Evan:

So we only have a couple minutes left. But one of the biggest risks to longevity of your money long-term care. You've got to plan for long-term care before you need it folks. With 70% of people over 65 likely to need long-term care, the plan is essential. Nursing home costs an average of $8,669 per month. That's nationally. It's over $9,000 in Georgia for a private room. Medicare doesn't usually cover them. Generally over a hundred, generally, excuse me, only a hundred days. Relying on personal savings or family support can create emotional and financial strain. We also know that that tends to drain the bucket real fast. There are a lot of options. You know one, one really popular one these days, exploring long-term care and hybrid life insurance options.

Mark:

Yeah, there are hybrid tools out there now the old, exploring long-term care and hybrid life insurance options. Yeah, there are hybrid tools out there now. The old traditional long-term care policy was kind of like a health insurance policy If you don't use it you've wasted your money. Those have gotten very difficult to get. They've gotten very expensive. They're going up every few years. Only a few carriers left for that. But there are some hybrid tools Again. We mentioned earlier an annuity that could double or even triple your income if you have a long-term care need Again, a hybrid life policy where the death benefit can be used for long-term care and you don't pay for that rider unless you utilize it. And then it comes out of those payments 5% or so. We might need another alert episode.

Mark:

That might be a whole episode, but ask us about it. Schedule that time. Masterplanretirecom. If we've hidden, hit any button. If you've had experience those people that have had experience with family members, loved ones, with a long-term care situation, whether it be home health, whether it be whatever they know the toll, they know the cost and so, yeah, that's that's got to be part of your plan.

Evan:

Yeah, and there are a lot of other options too. If you're lucky enough to have an HSA, if you have a high deductible health insurance plan, those can be super powerful in retirement. Again, you might want to consider part-time work or phased retirement. Not everyone is just calling it quits all at once. Sometimes it's easier, not only financially but emotionally and psychologically, to phase out your retirement, maybe work part-time.

Mark:

We're seeing more and more clients that are doing that. I'm just not quitting because people are retiring earlier. If you retire at age 60, that's pretty young, so you might want to do something with your time. It could be volunteer, but it could be making some extra money as well. That's good, great episode, we. It could be volunteer, but it could be making some extra money as well. Yeah, that's good, great episode. We've enjoyed you being with us. Tell your friends about it, but in the meantime, until we see each other again, plan well and prosper. Take care. This was Retirement Roadmap Radio with Mark Fricks of Master Plan Retirement Consultants. To schedule a complimentary consultation, go to MasterPlanRetirecom or call 770-980-9262.

Speaker 3:

Thanks for listening and remember. Plan well and prosper and no representations can be made as to its accuracy. All ideas and information should be discussed in detail with one of our qualified representatives prior to implementation. Advisory services offered by Master Plan Retirement Consultants. A registered investment advisor in the state of Georgia, Mark Fricks, and Master Plan Retirement Consultants are not affiliated with or endorsed by the Social Security Administration or any other government agency.