The Risk of Living Too Long in Retirement

Think accumulating assets to fund your retirement is difficult? Just wait until the time comes to begin distributing those assets.

 

Most of us view risk and risk management as protecting ourselves and our families against a loss such as property, income, or life. Longevity risk, however, comes from having too much of something – years of your life.

The chart below shows that when you’re 65, your chances of living into your mid-80s are better than when you were younger.

If you started working and saving for retirement at 20, took early retirement at 50, and live until 79 (the national average), you could easily take as many years to spend your nest egg as you did to build it. As medical technology increases along with life expectancy, the chance exists that you or your spouse will live past the age of 80. The longer you live, the greater your risk of outliving your money.

Planning how to make your money last as long as you do can be complex. For example, you can begin taking withdrawals from your IRA at age 59½, but should you? You must take minimum IRA distributions beginning at age 70½, but what if that pushes you into a higher tax bracket. Deciding which assets to tap when, and with what tax and investment consequences, can be overwhelming. You may need to reallocate or even liquidate investments to provide cash flow for daily living expenses, avoid as much in taxes as possible, and account for potential market downswings. Strategies for repositioning your portfolio and liquidating assets can take years in order to avoid high tax bills. 

Longevity risk carries within it the increased risk of disability in terms of caring for yourself. Genworth’s 2019 Cost of Care Survey showed that the average cost for a private nursing home room is $102,200 a year.2 Many people mistakenly assume that Medicare will pay for nursing homestays. It does not. Long-term care insurance can range from nursing level only to complete in-home and companion care. You should consider purchasing long-term care coverage while in your 40s or 50s to secure a reasonable premium. 

The stadium rock band Queen recorded a song for the movie “Highlander titled “Who Wants to Live Forever? It may not be forever, but Americans today certainly live longer than their ancestors. Finding ways to fund those extra years can help you have the quality of life, not just quantity.

1https://www.ssa.gov/cgi-bin/longevity.cgi

2https://www.washingtonpost.com/business/personal-finance/for-seniors-hoping-to-age-in-place-the-cost-of-in-home-care-just-got-a-lot-more-expensive/2019/10/29/7f9b63a4-fa4c-11e9-8190-6be4deb56e01_story.html

Securities offered through Securities America Advisors, Inc., member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Hunt Country Wealth Management and Securities America are separate entities. 

Securities America and its advisors do not provide tax advice. Please consult with your tax professional regarding your individual tax situation.

Written by Securities America for distribution by Hunt Country Wealth Management. 

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