Recently I viewed a commercial by Prudential that asks people the age of the oldest person they know, and to put a blue circle on a huge wall by age. I was shocked to see the results (even though it was a commercial): clearly, Americans are living longer…and hopefully, so will you. The big question is, will you outlive your money?
According to the National Vital Statistics System, a division of the CDC, life expectancy for a male is 78.7 years, and 84.5 years for a female based on a 2011 study, with an average lifespan of 78.1 years. Now, there are many jokes around as to why females live longer than males, but I won't go there, mostly out of fear of reducing my own lifespan! While there are many variables in this statistic like location, race, etc. the fact is that statistically we are living longer, and must depend on our savings and other income to support us into the golden years of our life. Now compare these numbers with those of 50 years ago, when the average age was 69.6 years. Roughly, we are predicted to live 10 years longer than the generation or two behind us- are you ready?
Way back when, as they say, retirement planning was a bit simpler: most corporate jobs had a Defined Benefit Plan as part of their benefits package, and those who worked in those types of industries put in their time, got their gold watch, and went home to find a lifetime of checks in their mailbox. In conjunction with Social Security, they had a reliable, dependable income and budgeted for it. Alas, those days are gone. Most large corporations have shut down their Defined Benefit Plans and replaced them with contributory 401(k) plans, and we've been told to save, save, and save more, taking into account the daily scare that even Social Security may not be there when you thought you could rely on it. Social Security, designed to be a supplementary income source to your savings and pension, nowadays accounts for the main income for about one-third of households living on nothing other than Social Security, according to an analysis of data by the Center for Retirement Research at Boston College. Among those with low incomes, 75 percent of people live on Social Security alone, the center calculates. The average Social Security check is $1,230 or $14,760- not counting deductions for Medicare payments, roughly $115 per month. Needless to say, it's not pretty.
If you are not retired yet, you have the power to change your financial future- and it's not just about saving more or just eating hot-dogs for the rest of your life. It's about planning for the future, not guessing what it will be like when you get there. Knowledge is power as they say, and you have the technology and ability to set yourself up now, far more efficiently than our previous generation. If you're not a finance aficionado, I recommend highly that you seek the assistance of a qualified Certified Financial Planner™ to do projections of what your income needs will be at your projected retirement age, as now is the time to make any changes necessary to meet your goal. You can't project your future expenses without knowing everything there is to know about what it cost to live today, and as you project through the years, you must take into account inflation, amortization schedules on debt (school loans, mortgages, etc.) and a host of give and take items in the calculation. I didn't say it was easy: I do say it's efficient. Now, let’s talk about your risk tolerance, or for many, lack of it. The growth of your investment portfolio depends on the investment vehicles you utilize- and luck. These days, most folks are torn between hopefully bringing in a certain expected rate of return vs. staying within their risk tolerance, or as we call it, the "sleep at night factor." Unfortunately, in this time of low interest rates, people are forced to decide between staying within their risk tolerance or taking on more risk with hopes of higher return. As we all know, there is no guarantee when you play in the stock market sandbox,- you may get buried, as in 2008. It's a risky balance, and not for everyone. But, unfortunately, many are forced to choose between staying in their risk tolerance or straying out to pay their bills.
If you are already retired, all is not lost- you have choices. Review your investment portfolio with your Certified Financial Plannerâ„¢ and your monthly expenses. Perhaps you may consider a geographic change for your residence- living here in the New York area is ridiculously expensive. Have you compared your insurance rates, and are you getting the best rate on your utilities? Have you looked at the difference between "need" and want" in your monthly budget or spending habits? Yes my light haired brethren, we have choices. If you feel like you are struggling, get help or at least an opinion from someone who has experience in this area of finance. There is no reason to go it alone: we should never be too proud or old to ask for help. Besides, once you get in front of someone of the younger generation who will listen, don't you feel the desire to teach them a thing or two? Isn't there something about what's good for the goose is good for the gander?
