Planning for longevity
Only a small percentage of people die at the age all those life expectancy charts predict they will. Most people die sooner or live longer. That’s the point of statistical averages.
That means you need to figure out how — simultaneously — to live for today and plan for a long, long life. And that is the central challenge of existence, isn’t it? Enjoying the here and now, while deferring enough gratification to insure a good tomorrow.
That’s a philosophical conundrum that many Zen masters and French existentialists could spend years analyzing. But you may not have that kind of time!
Here’s how to organize your finances so you can eat well now and still sleep well later.
– First, find out what you’re looking at. Check out the longevity calculator at http://www.livingto100.com. Look at your relatives, your health, behavior and life style to see whether you could be expected to go long or not. Remember this is a guesstimate, not a guarantee, but it will give you some idea of how long you have to make your money last.
– Delay some gratification and save for the long haul when you’re young, even if it seems like you can’t afford it. Start saving for retirement when you’re 22, and you stand a decent chance of being set for life by the time you’re 40. Wait until you’re 40, and you may never catch up. Besides, 20-somethings can have the most fun on the least amount of money, right? It’s the age of pot-lucks, happy-hour “dinners,” runs in the park and free/cheap entertainment.
– Find something fun and profitable to do between the ages of 55 and 65. These are early retirement years. Many 50-somethings get involuntarily retired earlier than they expect. Others jump ship as soon as they turn 62 and are eligible for Social Security benefits. Don’t wear yourself down when you’re 60, slogging through work you hate. But the rest of your life will be wealthier and easier if you can manage to work a little longer and make a little more at something you can enjoy.
– Refuse to take on debt, except for houses and, only if absolutely necessary, cars. What you’re really borrowing is your own future comfort. When you borrow money from the future to buy things that will be consumed now, you’re setting your goals backwards.
– Don’t downsize too soon. Boomers who think they can cash out their home equity and live on that for years may be right. But if they start too soon, in their 50s, say, they may end up out of cash and out of house by the time they are 80. Consider keeping the bigger house for the early part of your retirement and downsizing later, like in your mid 70s.
– Stay open to change. If you have to sell your beloved home and move to something smaller and cheaper in your later years, it doesn’t have to mean the end of happiness. Be adaptable and you can live longer, and more contentedly, on less.
– Consider financial products that will help you hedge your bets. You can use some of your money to buy an immediate annuity if you’re heading into retirement and want to guarantee a lifelong stream of income. If you annuitize only a portion of your savings, it could free you to spend more money in the early years of your retirement.
Or, you could set aside a sum for buying “longevity insurance.” This product, currently offered by a handful of companies — MetLife, The Hartford and NYLife among them — works like this: You pay a lump sump when you’re around 60 or 65 years old. You get nothing in return for 20 or 25 years, but then get big bucks monthly starting at 85. That enables you to run through the rest of your money at a faster clip, knowing you’ll be okay if you live a long time.
If you think you’ll go the other way, Vanguard has an annuity that is medically rated: If you’re in poor health or have a lower-than-average life expectancy, you can front-load your policy for bigger payouts.
– Don’t rush into those products. You have time to consider them carefully. Annuity products keep getting better; they add more bells and whistles and are more closely watched by regulators. New ones come on the market with lower fees. And, the older you are when you buy your policy, the better the benefits are likely to be. You can also buy annuities gradually in the early retirement years to take care of the later retirement years.
– Don’t get too conservative too soon. Just because you’re retired — or 60 or 70 or even 80 — doesn’t mean you shouldn’t keep some money invested for growth. That growth will help fund you in your later years.
– Invest in your nonfinancial future. Cultivate hobbies that don’t cost a lot. Cultivate younger friends and take care of your kids. And take care of your body, too. None of this is assurance of beating the charts, but it does mean that if you do live to be very, very old, you have a better chance of enjoying life.
As the centenarian ragtime pianist and composer Eubie Blake once said: “If I had known I was going to live this long, I would have taken better care of myself.”
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