Tuesday, June 11, 2013

The Challenge Of Zombie Retirement Planning

I've been talking lately about "knowing your retirement number", that magic number or amount of money you'll need in order to retire (and stay retired) with the kind of lifestyle you'd like to maintain. It's important to know your number so that you know where you need to be (financially) when you get to retirement age. Knowing where you need to be allows you to create a road map to get there and it is one of the first steps in retirement planning. Everyone's number is different and is based on a lot of different factors. A few of which, as you'll see, make retirement planning pretty tough if you're a zombie!

Aside form the obvious challenges of working with zombies - they try to eat you at every
meeting, they don't answer your questions, they're constantly wandering off, etc - there are also a lot of planning challenges that come into play. For example, one of the biggest factors in your retirement number is longevity, or how long you expect to live after retirement. If, for example, you know you only have one year to live then you can spend every penny you've saved during that year without worrying about running out of money the next year. However, if you expect to live 30 years after retirement, your retirement number will need to be much bigger and you'll need to budget your spending because the money has to last much longer.

Hence the first problem of zombie retirement planning, in theory a zombie could go on existing forever! While the living can expect an average of 25 - 30 years of life after retirement, the walking dead may need to plan for double or triple that amount of years. Very few people have factored in their longevity and fewer still have saved enough money to live their pre-retirement lifestyle for 30 years. Imagine how difficult it is to convince a zombie to plan for 60 years!

Compounding the problem is the fact that life expectancy is only an average and about half of all the members of a certain age group will live past their life expectancy. So if your retirement plan is based on using up all of your income by the time you reach your average life expectancy, you have a 50 percent chance of outliving your income.

Second, life expectancy is not a constant, but rather a moving target. If you've reached 65 already, your life expectancy has already increased. After all, you've survived many people in your age group who died before you. Your new life expectancy based on your current age is called your longevity, and longevity is a more accurate assumption on which to base your retirement income planning.

Consider this: Americans who reached age 65 in 2011 are projected to live another 21 years to age 86, on average. If these same Americans reach age 86, their life expectancy would extend to age 93.

And here's one final thing to keep in mind: While a 60-year old man today has a 20 percent probability of reaching 95 and a 60-year-old woman has a 30 percent chance, there is a 40 percent chance that at least one member of a married couple at the same age will live until 95. Retiring couples need to carefully consider this when planning for retirement.

Making retirement income projections should involve balancing the risk of drawing down your income too quickly and being left with little to live on in your 80s or 90s, against spending your income too slowly and needlessly crimping your retirement standard of living.

It's natural not to want to consider your own mortality. Many workers planning for retirement, and even those on the cusp of retiring, see life after work as a golden time stretching into a hazy horizon. It can indeed be a wonderful second act, but that will depend on your taking an honest look at how far away that horizon really is.

You won't live forever. But you may live longer than you expect. Used correctly, life expectancy and longevity can be powerful planning tools that can help provide a truer picture of what you have to do to make your retirement years both comfortable and secure.

Fortunately if you're reading this, you're still among the living and don't have the extra challenges faced by the undead. Planning your retirement and thinking about your longevity may seem scarier than a night out with a crowd of walkers, but knowing your retirement number and working on a plan to get there can help put your mind at ease and insure the retirement of your dreams. If you don't yet know your number, you can access 3 great retirement calculators right now at https://pyz92550.infusionsoft.com/app/form/know-your-number. Or, for your very own personalized Retirement Income Replacement Analysis, email me at r.edgin@weinsurecolorado.com and request the Retirement Questionnaire. I'll email it to you at no charge.

1 comment:

Kirk Meyer said...

The sooner to start with a retirement planning,the better it is.And the more you learn about retirement planning the better your plan would that be.