Congratulations. You’re going to live a lot longer than you think. Good for you. Maybe not so good for your wallet.
According to the Actuaries’ LongevityIllustrator.org website, a 65-year-old has a 50% chance of reaching the age of 94. That 65-year-old has a 25% chance of reaching the ripe young age of 99.
Now, the Actuaries’ LongevityIllustrator.org goes on to ask this straightforward question regarding the real possibility of you and Martha outliving your money. How long can we expect to live as a couple? How long can we expect a survivor to live after one of us has died?
Now, think about this for a minute. If you’re 65 years of age, there’s a good possibility you or your spouse could live to age 99. You know what? There’s even a higher probability than ever before that one of you could live to age 100. Perish the thought, right?
In fact, speaking of living to age 100, while there are approximately 500,000 people in the world who are 100 today, they estimate that in 30 years they expect that 3.7 million people will have reached 100 years of age. As someone who works in the daily financial trenches, such as yours truly, the question on my mind is given the fact that we’re all living longer, will our money last as long as we do?
Today, we’re going to deal with the two most important questions you’ve got to ask yourself to determine how successful your retirement is going to be.
Now, these two questions will allow you to measure better the possibility of a successful retirement and the idea of how in the world you’re going to keep from running out of money. The questions that swirl around this issue of what these actuaries are talking about is actually a term defined as, or labeled as, longevity risk.
Let’s define longevity. Longevity simply means the expectation of how long one is expected to live. So you add in the term risk to longevity, and you have longevity risk, which is the uncertainty of how long you and your partner or spouse might live. Now, again, as a financial advisor, I have to deal with this topic each and every day because I see hundreds of people throughout the year literally, and they’re wanting my thoughts on retiring or maintaining a successful retirement, or being worry-free in retirement, or can I retire?
The financial institutions out there, they know all too well this longevity risk. The problem is they are not, a lot of times, sure what to do about it. There is a good ad, by the way. You may have seen this on TV. It’s a picture of people that are walking on this big chart that’s laid out on the ground. And they’re asking people to walk along and determine when they’ll run out of money. Many of them start walking because apparently they’ve run out of money in this example they’re posing. One of the people stops and kind of yells out, “how did this happen?” In other words, how did I run out of money? And it’s a great question. Again, we have the answer. Problem is Wall Street, and for those of you who have money in your 401(k), there is no answer to that question for them because they are introducing risk into the equation.
The first measure of a successful retirement, the first question you must ask is this, do you have a plan, a place, that will guarantee you– do you have a product, do you have a plan that will guarantee, I said to guarantee that you won’t run out of money. Does this plan last as long as you do?
We’re going to role play here. You ready? You’re age 65. You’ve been watching this TV show, and you just retired last week with no game plan. You say, shoot, I need to come in and see Tony Walker. I just found out I got a 50/50 shot of living to 94. I didn’t expect that.
So you drag out your 401(k) statement, and it says $400,000. You’re looking over your social security benefits. You haven’t even filed for those. You don’t even know if you should file now or put that off. You look at your mortgage, and you still owe $75,000 on your home. And now, you’re saying, now, “do I pay that off or what do I do there?” You look over at Martha. She’s been driving a clunker around for years. She wants a new car. Where are you going to get the money for that? Then you just looked at your benefits statement from your employer, who you worked with for years. And it says that you’re going to lose your life insurance at work now that you’re retired. In addition to this, you got about $30,000 in the bank and some random stocks you’ve purchased over the years. And there you are.
So my question to you as you come in, where are you going to take money from? Which accounts? What’s the taxes going to be? What’s the taxes on your social security? How in the world are you going to try to pay off your home? And with what? Do you have enough savings? Why in the world did you not have any life insurance? I know you’ve been listening to fellows on the radio, or whatever, telling you won’t need it. Folks, that’s the most ridiculous thing in the world. Everyone needs life insurance because we’re not getting out of this thing alive, but you just informed me that you’ve got a heart issue. Well then, now, we can’t get life insurance.
So now, if you die, Martha is upset with me. You’re dead and gone. She’s coming to me saying, why didn’t hubby have life insurance? It goes on and on and on. So what I do as a retirement specialist is I gather all this information. And I make sense of it. I do it each and every day. And we’re going to answer this question for you. And I will provide a solution of how we can make sure you don’t run out of money in retirement.
This guaranteed income is something that we call Mailbox Money®. And the definition of Mailbox Money® is guaranteed income for the rest of your life. So remember, folks, Wall Street doesn’t offer Mailbox Money®. They offer stocks, bonds, growth mutual funds, etc. while they could possibly provide you plenty of income, they can’t guarantee it. And savers don’t like woulda, coulda, shoulda. Savers want guarantees.
So real quickly, what are the three forms of mailbox money? Remember, there are only three forms of mailbox money. There are pension plans, which they’ve kind of gone the way of Led Zeppelin. There’s social security. And then, finally, there are private annuities issued by insurance companies that can provide Mailbox Money® for life, private annuities, which we sell.
We’re one of the largest representatives of private annuities in the country, as far as one agent writing this much in annuities. We know these products very well. And more importantly, we know how to incorporate annuities within a game plan.
Well, you might be sitting there saying, “wait a minute, Tony. You said guarantees. I got CDs. Aren’t they guaranteed?” And I would say, of course, a CD is guaranteed, but the problem is– and we’re assuming the next 30 years. And let’s just take that $400,000 401(k) and run over to the bank and plop it in a CD, it’s 2%. Well, that’s only $8,000 a year, unless you want to draw down on the principle. Since we don’t know what the future interest rates of the CD would be, that isn’t going to work. So again, folks, it is very, very difficult to find products that can do what we’re wanting to do. That’s guaranteeing an income you can never outlive.
So, the first question, do you have an investment source of income to provide Mailbox Money®? Now, the second question for a successful retirement, here are the 4 things that you’ve got to have. We’ve got to get risk off the table, but because you’re living longer, we now have new risks.
The first risk we’ve got to deal with is stock market risk. Stock market risk. You see, over the last 30 some odd years, every seven years, the market has taken a downturn. Since ’87– I got in the business in 1984– every seven years– I call it the seven-year itch– we’ve gone through a major downturn. Because you live longer now, the chances of another downturn affect you.
The second risk is called interest rate risk. Interest rates affect bonds. They actually affect stock markets. They affect all kinds of things. And again, if you’re going to live an extra 30 years, the chances of interest rate risk rear its ugly head.
The third risk is going into a nursing home or having some sort of long-term care issue. Now, again, you may don’t even have to go into a nursing home. But let’s say you can’t take care of yourself and someone has to come into your home. Folks, this is huge, huge expenses. And one that we have to deal with, which we do in Tony Walker Financial for our clients.
The final risk, this is really cool stuff, and nobody ever wants to talk about this. Sequence of returns risk. So, these four risks are real. Because we’re living longer, we’ve got to deal with them. I’m not going to leave you hanging.
Tune into our show The WorryFree Retirement® as we dive deeper into these 4 new risks associated with Longevity Risk over the next couple of weeks.
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