Your Retirement Plan Just Went Up in Smoke!
Read why and what you can do about it.
You can blame medical science and healthier lifestyles for the increasing longevity of many Americans and the financial insecurity that goes a long with it. More and more people are reaching age 100 and they are living longer after they reach that advanced age.
Plus, medical breakthroughs are accelerating. It is only a matter of time and money before medical breakthroughs make cancer and heart disease more treatable and less life threatening.
So, how does rising longevity impact you and your spouse?
Let’s say you retire when you are both age 65. One of you has an 80% probability of living to your mid-90’s, but let’s say both of you do. This means your number of retirement years rivals your number of working years.
A lot can happen in the next 30 years that impacts your financial security: Stock market crashes, interest rate spikes, wars, high inflation, bankruptcy for Social Security or Medicare, and what about the $22 trillion national debt that keeps climbing.
The IRA Challenge
Perhaps you are one of the lucky few that retired from a company that sponsors a defined benefit plan. This plan produces a monthly revenue stream that is guaranteed by the net worth of the company. This puts your financial security partially in the hands of the company that you worked for.
There is a much higher probability that you will retire from a company that sponsors a defined contribution plan (401K) that distributes your assets to a rollover IRA when you retire. You are responsible for the investment of your assets for the next 30 years.
It’s Your Money
The assets in your Rollover IRA, plus Social Security and assets in other accounts, have to fund all three phases of your retirement:
- The Honeymoon Years
- The Mid-Retirement Years
- The Late-In-Life Years
Phase I: The Retirement Honeymoon Years
Phase I is the fun years. We call them the honeymoon years because you are new to retirement. Your job is to enjoy life and do all of the things you wanted to do, but didn’t, during your working years: Vacations to exotic locations, joining the expensive private country club in your community, buying a second home in the desert, mountains, or near the ocean.
Your retirement plan should be designed to accommodate a great life-style during the honeymoon years – after all, you have earned it.
The Mid-Retirement Years
Eventually time catches up with all of us. Our bodies start breaking down at a faster rate. Longer trips are exhausting and no longer worth the effort. Bad backs impact our golf games.
Your lifestyle becomes more sedentary and a good game of cards takes the place of 18 holes of golf. Family and friends become increasingly important. This may be the period when you move again to be closer to your children and grandchildren.
The Late-in-Life Years
The late-in-life phase requires the most planning. That is because they are so unpredictable in regard to the health of both spouses. It is the stage when one or both spouses may end-up in Assisted Living, Skilled Nursing, or Memory Care. And thanks to medical science, new drugs and advancing medical procedures can keep you alive for years.
Looking out 10, 20, or 30 years, these services are going to be extraordinarily expensive. How expensive? Insurance companies that sell long-term-care policies are getting 50% to 100% increases in premiums to fund these rapidly rising expenses.
This is the most difficult planning phase due to all of the unknowns in regard to the future health and mental faculties of both spouses.
A tiny fraction of the U.S. population currently reaches age 100 – perhaps a few hundred thousand people out of 350 million. This number is exploding and will continue to grow for decades into the future. Your children and grandchildren will have an increasing probability of living well past 100.
What is the bottom-line? The longer you wait to create a plan for your financial future, the greater the risk you will fail to achieve financial security late-in-life.