Retirement-How Much Money Is Enough?

As you can imagine after being in business for 30 years, I have attended lots of industry conferences.  After a while, I yearned for sessions where I could learn something new.  Several years ago, I attended a track of sessions which focused on the aging of retirees.  I came away with many ideas for me to better serve my clients.  However, one of the sessions was prophetic.  It was a session which presented new data on life expectancy and health trends of people who had retired.  And although we now commonly discuss this information, and indeed, the many of the trends are now confirmed, the session was mind-boggling.

Twenty years ago, the trends indicated that retirees would be challenged by the cost of health care.  Healthcare would be different because there would be a tsunami of new medical technology and medicine to help us live longer-and live better longer.  People living to age 100 would be a daily occurrence.  If scientists discovered a cure for cancer, these numbers would go through roof on a long-term basis. 

Retirees would see services and products designed specifically to meet their needs.  Today, for example, we see companies marketing walk-in tubs and showers.  People would buy these products and services to help them stay at home for as long as possible.   We observe that current retirees will spend whatever it takes to stay home rather than going to a nursing home.  Now we see everything from food products to scooters to meet the objective of people wanting to living longer lives.

There is a tremendous amount of time, energy and capital directed to living longer lives.  And the result of this is that people are actually living longer lives.  That is good news.  The bad news is that living longer requires more money.  The math is simple.  Even if the budget is the same, someone living to age 100 needs more money than someone to lives to age 83.

Running out of money before your life ends is what we call longevity risk.  Every financial plan must assume a certain life expectancy.  It’s impossible to draft a financial plan without it.  What life expectancy should you use in your plan?  Does your health and family medical history affect your financial plan?  What steps can be taken to minimize longevity risk?

For nearly 25 years, I had the privilege of working with a client who retired with over $1 million in his retirement account.  Despite my pleadings to address these issues, he always said, “Oh my, I won’t live that long.”  This past spring, he died, virtually penniless, in a Medicaid nursing home bed.  Family members had to contribute to the cost of cremation because there wasn’t even enough to bury him.