What are the Financial Risks of Living Longer?
Most of us aspire to live a long, healthy and prosperous life.
Yet, the financial downside of living longer is the increased risk of outliving your wealth – referred to as longevity risk. Recent studies confirm this to be a top of mind fear for millions of retirement age Americans.
“We are living longer and leading healthier lives compared to just 20 years ago”, says the American Journal of Public Health.
If you are 65 today and healthy, your life expectancy is 18 to 20 years.
For many, this may be their single most important financial issue.
How to Manage Longevity Risk.
The goal of longevity risk planning is to transfer a portion of your retirement savings into a guaranteed income stream that pays you, regardless of stock market conditions, interest rates, inflation or another Bernie Madoff. The income stream is guaranteed as long as you live. You cannot outlive this retirement paycheck if structured properly.
A staggering 84 percent of Americans consider it important to have guaranteed monthly income in retirement but only 14 percent have purchased a guaranteed income solution that ensures lifetime income.
What is a Guaranteed Income Payout Product and who offers them?
Some of the largest and most highly rated insurance companies now offer this specialty solution. These products simply convert a portion of your accumulated investments into guaranteed payments that are paid by the insurance company over your lifetime. Working with an experienced life cycle planner will help to minimize or eliminate surrender penalties and ensure that your heirs will receive unused principal.
According to Yale Professor, Roger Ibbotsen:
Investors should be willing to pay an insurance premium to hedge away the longevity risk.
You need a guaranteed income solution if you are:
- At or near retirement – no more income.
- Concerned about outliving current assets.
- Concerned about spouse’s well-being upon your death.
- Currently invested 100% in bonds, stocks or real estate.
- In need for income until death.
- Concerned about losing investment control if health is compromised.
- Currently do not have a longevity risk advisor.
Can you beat the insurance company?
A 65 year old woman can give an insurance company $500,000 today in exchange for a guaranteed income stream of $39,762, beginning at 70.
If she waits until she reaches 73 before starting the income stream, her guaranteed lifetime income jumps to $51,494. The longer you wait for the payouts, the higher they will be.
If the same 65 year old woman invests $500,000 at a 2% rate and begins to withdraw $39,762 while still earning 2% on the remaining principle, she will run out of money in 20 years, at age 85, well before life expectancy.
At 4%, she will run out of money at life expectancy or age 90.
With life expectancies continuing to increase, those who have a family history of long lives must be aware of the possibility of a long lifetime and adjust their income and investment plans accordingly.
Do you have an advisor who is knowledgeable and experienced in longevity risk planning? If you are age 65 or older, this may be the most important advisor on your team.
Email me at: TBernstein@LifeInsuranceConcepts.com
Ted Bernstein of Boca Raton, Florida, is an expert in life-cycle risk planning. Specializing in mortality and longevity risk issues, he is a life insurance professional and nationally recognized innovation expert in risk based insurance solutions. With decades of speaking out and advocating for changes on behalf of consumers, he was the first to introduce life insurance without commissions or “no-load” life insurance in the mid-1980s. His most recent innovation, the Installment Payout Option, is a game-changing alternative for how policy proceeds are protected. To learn more, visit TedBernstein.com or call 561-988-8984.