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Not having enough money saved to last them in their golden years. Industry expert Tom Hegna has written extensively about this fear in both of his books “Don’t Worry, Retire Happy” and “Paychecks and Paychecks.” He states, “The number one risk retirees must take off the table is longevity risk because it is the multiplier of all the other risks.”
Time and again, surveys show a top concern for pre-retirees is longevity risk. In one survey conducted for Allianz Life in 2017, 63% of respondents said they feared running out of money in retirement more than they feared death. In our younger years, we are looking to accumulate where the rate of return is important. However, the day we retire, all the rules change; we are now are in the distribution phase.
For example, let’s say we are going to climb Mount Everest. Our goal would be to get to the top right. Well, not necessarily; our ultimate goal would be to safely get back down the mountain. When we are climbing the mountain, we are younger and in the accumulation stage; however, we are now in the distribution phase when we start down. Now, where do most climbers get killed? You guessed it, coming down the mountain. Why? There are many risks, unpredicted storms, avalanches, falling in a snow hole. It is the same with retirement; we have market risk, inflation risk, long-term care risk, deflation risk, the sequence of returns risk, rate risk, mortality risk, longevity risk, withdrawal rate risk, taxation risk, regulatory risk.
But the number one risk we MUST take off that mountain is Longevity Risk because it is a multiplier. If you live too long, all these risks multiply. How do we take longevity risks off the table? Stocks Bonds mutual funds may not do it as they can have market risk on a downturn. Your paycheck must be guaranteed, and your income is immune from risk. One commonly used approach is guaranteed lifetime income is an annuity. A lifetime income annuity, a deferred income annuity, or an income/withdrawal benefit rider from a fixed or variable annuity that is its period.
Many people say to me, Len, I hate annuities. So I always ask, do you receive social security? Yes, the answer is to call social security up and tell them to stop sending those checks because we hate annuities in this house. Same with a pension, they are nothing more than a lifetime income annuity offered by an insurance company.
A white paper from the Financial Research Corporation (FRC) talked about longevity, “Planning to age 90 feels good because few people believe they will live to 90, however, 33% of healthy 65-year-old men, 44% of women, and 63% of married couples will have at least one spouse live beyond age 90. Simply put, a Financial Plan assuming age 90 will fail 63% of the time.” Let me ask you do you want to be in that 63%? We must take longevity off the table. Here is another quote from the FRC. “Income annuities offer features others cannot- High cash flow, uncorrelated to market returns: retirement alpha in the form of mortality credits, which only life insurance companies can manufacture; longevity hedging and liquidity features.” Only Life Insurance Companies can offer annuities.”
When we were younger, and the storybooks and the old movies would end, they lived happily ever after. Again, research shows that retirees who have lifetime income that handles all their basic needs factoring in inflation, taxes, and Required Minimum Deposits (RMD), are happier and live longer.
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