Human Longevity is a Risk Multiplier in Retirement is part four of Money Tips for 2016 taken from the full episode of Right on the Money.
Jeanne Calment holds the Guinness Book of World Records for living the longest at 122 years, 164 days. Famous gerontologist Dr. Aubrey de Grey says the first person to live 150 years has already been born. The average life expectancy for a U.S. male is 86.6 and female is 88.8. That means half of Americans will live longer than that! It is estimated the U.S. has more than 53,000 centurions. Could you be one of them?
Most retirement plans are not funded enough to make payouts to age 90, much less to age 100, so the fear of running out of money in retirement is warranted. Baby boomers are delaying retirement to age 70 to maximize their Social Security benefits and contributions to their qualified retirement plans. But if they’re living another 25 years, that may not be enough. You have to take longevity risk off the table.
By the time you enter retirement, household expenses are generally less than they were during the working years. But the real cost of living seems to continually increase. (Interesting to note: Social Security benefits will not have an increase in 2016.) Most seniors in their “go-go” years travel to see their children and grandchildren. So vacations and fixed household expenses need to be covered with an annual increase factored in.
Single premium immediate annuities, deferred income annuities and guaranteed withdrawal benefits generally used with indexed annuities can provide guaranteed lifetime income. Only insurance companies can make such contractual claims. The special ingredient in these annuities is called mortality credits. Although insurance companies are all fishing out of the same debenture pool with relatively the same bond returns, they price their mortality credits all over the board. It’s really worth taking your time to shop the market for the best income deal available. Here’s a heads up. The 2012 CSO mortality tables are currently being adopted as a base-pricing model. The tables reflect greater longevity, so the guaranteed income is expected to decrease at the end of the first quarter. But don’t do this yourself. Find a financial advisor or insurance professional to bid out your single deposit. Don’t forget to use annuity contracts issued from insurance companies with strong financial balance sheets.
Syndicated financial columnist and talk show Steve Savant interviews Ted Meyer, RFC, IAR on Money Tips for 2016.