The price of living forever
The other day, I was preparing to record a podcast for Vanguard.com on life events and asset allocation. I decided to veer away from the predictable “retirement is a life event” theme and concentrate on marriage, children, and divorce as life events that should stimulate some serious consideration of your asset allocation.
Then I happened upon this Wall Street Journal article, which made me pause.
It seems every week or so we learn something new from the study of the human genome. As the WSJ notes, scientists have discovered a “genetic signature of longevity,” which could soon lead to a simple test telling people whether they’re likely to live to 100. Already, direct-to-consumer genetic tests distributed over the internet are proliferating. Walgreens recently came close to providing over-the-counter genetic testing kits, but has since backed away. Sensibly, physicians and the Federal Trade Commission advise consumers to exercise caution.
When I saw the WSJ article, I couldn’t help wondering—if you felt you had a good chance of living well past 80, would you handle your finances differently? Would you save much more today? Would you be willing to be more aggressive with your asset allocation—or more conservative? Would you take less risk in your personal life, and skip learning to skydive? Or would you not care?
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You do not have to “guess” how long you will live.
Vanguard has a fine tool called “Plan for a long retirement”.
I would suggest that anyone doing retirement planning should use this.
Without entering your own ages, you are looking at an example of a couple, each 65years old. The program is set to answer the question what are the odds that each individual lives for 30 years to the age of 95, AND the odds of one of the two surviving to 95. Amazingly, at least to me the first time I saw this, the chances are 18%.
Now the only question you have to ask is what chance do you want to take that one of you, assuming you are a couple, are going to outlive your money. Personally, I have picked 10%, which translates into my wife living to 99 and my living to 97. So without knowing if I have super genes, it just seems prudent to plan ones finances based on a long life
Obviously, there can be major mitigating circumstances that can alter this calculation. But if not, this is a great place to start.
At 70 I am still working and for every year that I do so, the earnings can support me for 2 years. I receive social security as well, having waited until I qualified for the maximum benefit. I’m sure with my life style I could live on that alone if need be. I travel often and extensively to all parts of the world and enjoy doing so on a backpacker’s budget. So far my health is good, but I am aware that one day either my heart will fail, or I will be diagnosed with an incurable disease. My parents lived well into their 90′s and I suppose I might too. But what is the point of just living longer unless you are doing things along the way to get some enjoyment, satisfaction, feeling of accomplishment, quality time with family, etc? I often relive the memories of my past adventures and still look forward to the next one, whatever it might be.
Anonymously,
PS: It would be appreciated if you let me know whether you published this since I don’t often read your blog.
Since the capacity for physical activity past 80 slows down so quickley, I do not understand all the worry. Most people who live a LONG time are not going to have many expenses in their last 10 to 15 years. Not even high medical expenses as they will be healthy or not alive at all. Their biggest expense will be in-home elderly assistance or an old folks home. Medicare will pick up the later if we run out of money.
If I knew I was going to live to 80 or 90 then the next critical question is will I live in good health or bad. Also, will I plan to leave an inheritance for my kids and/or grandchildern. There are probably other variables involved. So my answer to your questions is- – - – maybe.
To the person who is not worried about their retirement income past 80. I have spent the last ten years assisting my mother after a severe stroke…she did not have enough money and made some poor finacial choices such as taking her SS benefit at 62. She currently resides in a very nice Assited Living facility but it is a struggle to make it work financially…it takes all of her money and some of mine.
Assited living currently costs $3000 per month and is self pay. The next step is skilled care or nursing home. Medicare will only pay for 20 days of skilled care after that there is a hefty co-pay to 100 days, after which you are on your own…Medicaid is the utimate safety net…AFTER you have spent your assets down…but you get what you get…
So if you won’t mind being parked in a wheelchair in a hallway around the nurses station so the limited staff can keep an eye on you..then yeah, I guess you don’t need to worry about having enough money to support yourself in your golden years.
P.S. Make sure you are good to your kids…you’re gonna need them.
I disagree with the comment from July 18 at 10:48 am. Many people these days are living for quite a few years after having knee replacements, hip replacements, heart surgery, cancer treatments, or other expensive procedures. And a lot of older people are spending lots of money for assisted living or for medication and doctor visits for diabetes, high blood pressure, high cholesterol, and other problems. The idea that you are going to be “healthy or not alive at all” in your older years may be true for a fortunate few but not for many.
To be as much as possible on the safe side, I am trying to plan for a long retirement with relatively high living expenses, possibly including substantial travel expenses and/or substantial health care costs.
Primarily due to travel expenses and/or health care costs, assisted living, etc. I believe many people end up spending more money in retirement than when they were working.
For workers like me, with a child and without a very high income, it is very difficult to save enough money. As a result, I am planning on trying to work until age 70, and keep saving at least a little bit every year. Also, after retirement, I may have to move to a less expensive country.
It comes down to this: “If I had known I would live this long, I would have saved more money and taken better care of myself”. Do the best you can, enjoy your life as best you can, plan for the future as best you can, and what happens “is what it is”.
Before reading the article, I already knew I have a better chance of living longer than some– I have very long-lived relatives (I have a great aunt who was independent at 102). At age 62, I can tell you I am happy my husband and I have raised 6 healthy, loving children. We have been as careful as can be with our little savings, and have a modest amount put away which, if the calculators on Vanguard mean anything, ought to take me through my nineties at least. However, those 6 wonderful adults we raised are the ace in the hole. If my savings should not last, I bet I can find a bedroom to live in.
Ellen:
Skydiving is not very dangerous compared to many other activities (such as SCUBA diving or even driving a car). You should really try it!
Having said that, yes I would definitely plan differently if I could estimate my longevity. I am currently trying to figure out if I can retire early (before age 60). However, if I thought I were likely to live past 90, I would probably forego that early retirement and continue working until at least 65.
My mother lived with us for 5-1/2 years. We made the arrangement without considering, or even knowing the sacrifices we would be making and how they would affect our family…I am glad we did it but had we known what we were in for I’m not sure it would have been an easy decision.
My wife and I bought the best Long Term Care Insurance we could afford and we are saving as much as we can…I don’t want to put my children in the same situation if I can help it.
Financing retirement for a long time without earnings from work is determined, as noted herein, by health cost effects, but also, by the future value of money, and the tax load. These were not mentioned. There are millions of retired Americans who can remember the cost of their first house, and are astonished at the market price today, for the same house. Even the currently depressed prices are perhaps 15 times the purchase price of the 1960s -1970s. The house did not change, the purchasing power of the dollar shrunk. Retirees are appalled at real estate taxes; the annual amount exceeds by the several times the cost of their first car.
There are many calculators to project these inflationary effects, but no one knows what the future will bring. Inflation destroys old people’s life’s savings, and the level of our national debt guarantees future inflation. Only death and taxes are certain, but only one increases over time.
The answer: save, pray and vote.
I am turning 70 next month I sold my busines at 58 and semi retired. Worked part time and collected S.S. at 62. I am glad I did because I found out one thing money canot by is time or youth.
I have been researching long term care costs for some time. I am 63 and my wife is 61. We are both in pretty good health now. I am going to purchase some long term care insurance for my wife. For myself, as a service connected disabled veteran, I do not have to pay co pays at a VA nursing facility, so will rely on that. I may not get to go where I want, but that is part of the deal.
The insurance is expensive,but if you have a reasonable amount of assets, it may be woth it in the long run. Everyone has to look at their own particular financial situation. The question is twofold: Do I have enough to protect? And,can I afford the insurance premiums without it being too much of a burden? For the person or persons who don’t have much in liquid assets, don’t worry about it. You may use what little you have and then Medicaid kicks in. Also, keep in mind that your spouse can keep a certain amount of money and your house while you are in a nursing facility. The amount varies state to state.