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A Long Life Multiplies All Other Risks…

We all hope for a long and healthy life.  The only problem is having enough money to enjoy this longevity.  The facts are that 33 percent of men and 44 percent of women will live beyond age 90.  And 63 percent of all married couples will have at least one of them live beyond age 90.
Just 50 years ago the average life expectancy for men was 68 and for women was 72.  In the news we all hear about age 70 being the NEW 60.  I read an article by Alan Greenspan in 1978, saying that in the near future people would be retired as long as they were working.  At the time I thought, “how could that possibly be?”  Well, look around and see how many people are living past age 80.  My mother is doing well at age 93.  My daughter and husband had a2042 new baby boy last year, making him my mother’s 124th great-grand-child.  Since then others have been added.  Not counting spouses, my mother has 170 direct descendants.  All this is because of her living longer. But living longer doesn’t always mean better if you have not planned financially for that longevity. If you plan to just live until age 90, but then live 5 years more, for example,  what will you do then? What will you live on if you do not plan appropriately?
 
The Risks of Longevity You Should Consider
Inflation.  The longer you live, the more inflation becomes a risk. It erodes the value of your purchasing power and makes your limited retirement money tap out sooner.  
Interest rate. The longer you live, the more risk you have of not earning enough interest on retirement funds over the long haul and possibly running out of money too soon.
Withdrawal rate. If you take too much money out of our retirement pool of cash, you will run out of money.  If you have health problems that cost a lot of money (which you more than likely will if you live into your 80s and 90s), they will drain your pool of retirement money as well.
Order of return. If you withdraw a level amount of income at retirement, but the market goes down, then there is a risk of having your retirement fund depleted too early. One solution is not to take any money when the market goes down, so you don’t draw out the principal.  But who wants to retire and potentially not take any income to live on?  This is a huge risk.
Now let’s combine all these risks and see what would happen if you live a good long life?  Inflation will have a longer period to work against you.  Interest rates certainly have a bigger chance of being too low.  The rate at which you must withdraw your money could certainly increase due to increased health problems. And market declines that can occur more than a few times could cause the value of the principal to decline.
When you make plans for retirement, I caution you to manage all the risks, inflation, interest rate, withdrawal rate, and order of return, not just the amount of money needed. The only way to do this with any predictable confidence is to run the numbers using a reliable forecasting software. Call me today for information on how to do this: (801) 292-1099, ext. 2.

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