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Clients worry about the day-to-day fluctuations of the stock market. They worry about their account values dropping or missing out on the next big market rally.
They worry about runaway inflation, spiraling health care costs, out of control college expenses, and future tax rates.
They worry about politics – a lot!
I don’t blame them. These things concern me as well.
But there is one thing that worries me more than any of these: Running out of money!
Years ago, an elderly female client came in with her adult daughter. I worked with the client for several years. Her daughter came along because she had a few questions. She asked, “Why is my mom running out of money?”
It was not a fun meeting.
I explained that her mother was running out of money because she was spending too much. Her returns were in line with others her age that shared her risk tolerance, but she was spending about 15% of her balance each year. In addition, she occasionally made lump-sum distributions for unexpected expenses.
After years of being advised to cut back on her spending, she was finally at a point where she would have to move in with her daughter. (I later learned that she was supporting her 50-year old son who was chronically unemployed and living with her rent-free).
Running out of money is not a certainty, but it’s definitely a concern for many of us.
Bag lady syndrome. According to research done by the Institute for Women’s Policy Research, most women (52%) fear running out of money in retirement. A similar study done in 2013 by Allianz Life showed that 49% of women listed becoming a “bag lady” as their #1 fear.
When we do financial plans for clients, we show them how much money they will have at age 100. Most push back saying they won’t live that long.
Statistically, they are right. Fewer than 1 person in 5,000 will celebrate their 100th birthday. However, I run their financial projections out to age 100, just to be sure that they will (hopefully) never run out of money. In some cases, of course, they do, and adjustments might have to be made.
The Social Security Administration reports that the average life expectancy for a woman age 65 is 86; a male born on the same day can expect to live to age 84 on average. To see how long you might expect to live, click here.
Even if living to 100 is a remote possibility, the odds of one spouse in a married couple living to their 90’s is quite high. Among married couples, there’s a roughly 50% chance that one of them will live to see their 90’s.
All this assumes that nothing goes wrong. I listed a number of things clients worry about above, but the other big concern is healthcare expenses in retirement.
Retiree healthcare expenses. The Fidelity Retiree Healthcare Cost Estimate estimates that a 65-year old will need about $157,000 to cover their healthcare needs in retirement. Married couples might need as much as $315,000.
These figures take into consideration Medicare expenses, deductibles, copayments, and other health insurance costs. They do not include expenses for long-term care services which can be upwards of $150,000 a year or more. Genworth provides a breakdown of costs including in-home health care and assisted living expenses for each state. You can find it here.
Reframe. Most of the things we worry about in life, including running out of money, fail to actually happen. Rather than worrying about all the things that can go wrong, including running out of money, maybe you should reframe the issue and ask yourself what if I get to live to 90 or older?
Ease your fears by updating your financial plan to include assumptions for a longer-than-expected lifetime (90 is the new 70), unusual expenses, and additional healthcare costs later in life. If necessary, reconsider your spending priorities or even consider working another year or two.
What would your life be like if you lived well and were financially secure even to a very late age?
With some planning and a little luck, I hope you get to find out.
To discuss any of the topics in this blog or to learn more about how we can help you Cross The Bridge To A Confident Retirement, please contact me through my web site mikebranch.net, call me directly at 651-379-3935 or email me at mpbranch@focusfinancial.com.