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Your Biggest Financial Challenge in Retirement Probably Isn’t Your Stock Portfolio – it’s Your Life Expectancy!

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Over the past year or so, the ups and downs of the Dow and the Nasdaq have been uppermost in the minds of many retirees (and those close to retirement). In the roller coaster ride between euphoria when the markets rise and gloom when they fall, could it be that many seniors are worried about the wrong thing as they face an uncertain future?

That was the point of this thought-provoking article from NextAvenue, written by journalist Susan Freudenheim. She speaks in the first person about the worries retirees have regarding the markets and the impact of inflation. But, as she notes, her financial advisor offered her a helpful perspective. The biggest factor retirees need to plan for isn’t today’s Dow Jones average – it’s the reality that most of us will live far longer than we expect to. How can we plan in such a way that we don’t run out of money and end up a burden to those we love?

Nerve-Wracking Financial Headlines Prompt a Re-set

In her article, it’s clear that Freudenheim knows whereof she speaks.  “Just as my husband and I, both recent retirees, began drawing down our retirement savings, we’ve been hit by the barrage of nerve-wracking news reports,” she writes — “from 9 percent inflation and rising interest rates to stock market gyrations and recession warnings.” (This article first appeared last year when inflation was higher than today.) So, with a sense of unease, she made a wise decision: “I called my financial advisor to ask how worried we should be.”

In her article, Freudenheim reflects the concern many retirees experience. “Like many current and future retirees, we are eyeing our investment accounts daily,” she writes, “worrying how seriously the current market losses and global economic upheavals might erode the savings we’ve projected to see us through our remaining years.” She writes about having experienced the impacts of the 2008 Great Recession, “so we have had experience with a devastating market downturn turning into a robust market rebound.”

But back then, investors experiencing a hit to their portfolios had time to recover. For today’s retirees, it’s a different picture. “Now, with our income reduced to payments from Social Security, a few pensions and returns on investments, we haven’t been feeling as confident,” she writes. “When I called our advisor, I needed reassurance.”

The Advice: Consider the Long Term

Fortunately, Freudenheim’s advisor was able to remind his clients that, as retirees, the long-term view is vital. “My husband and I are in our 60s and in good health, so we’re planning for at least a couple decades of life ahead,” she writes. “With that perspective, our advisor noted, it’s critical to maintain a long-term approach to our investment strategies.”

Freudenheim’s advisor recommended that the couple divide their savings into two categories: immediate cash for living expenses, and investments that will grow our savings to sustain us for those decades to come. “How many decades?” she asks. “Statistically, life expectancy today in the U.S. is just under 78 years, but many people are living into their 90s.” That demographic reality suggests that retirees today need to think differently. They need to educate themselves and take a much more balanced and strategic approach to saving and investing.

Understand the Risks You Face

The NextAvenue article references a recent study from Boston College’s Center for Retirement Research, authored by an analyst named Wenliang Hou. The study, titled “How Well Do Retirees Assess the Risks They Face in Retirement?”, argues that “most people worry too much about short-term market fluctuations while underestimating their potential lifespan and future healthcare costs,” as Freudenheim explains. “He said longevity risk should be the most critical worry for people saving for retirement, followed by health and market risks.”

The key to a secure retirement, Hou argues, is to understand the relative value of the risks that retirees face. He boils the list down to five:

  • Longevity Risk (outliving their money)
  • Market Risk (investment losses)
  • Health Risk (unexpected health expenses)
  • Family Risk (the unforeseen needs of family members)
  • Policy Risk (unforeseen cuts in retirement benefits)

Freudenheim distills this down to the nugget of the study. “We should plan for a long life that includes an expectation of some potentially expensive end-of-life health costs,” she writes. “Historically, the stock market has risen by more than 10 percent annually, so it should not be our top concern, and we should resist the impulse to abandon the market when it falls.”

How Long Will You Live?

For her NextAvenue article, Freudenheim interviewed Hou, who described himself as “totally shocked” by the degree to which most retirees significantly underestimate how long they will live. “Many of us use our parents’ lifespans for guidance,” the article states, “but that kind of objective information is not reliable, Hou said.” 

Freudenheim uses her own parents as an example of why predicting our lifespan is challenging.

“In my case,” she recounts, “my mother died at 70, my father at 94. So how old will I be when I pass away?” That, says Hou, is “exactly the problem.” When it comes to lifespan, personal circumstances count as much or more as family history.

There are a few lifespan calculators online, such as this one, that ask a simple set of questions to predict life expectancy. The Social Security Administration calculator does the same thing but asks fewer questions and is a bit more pessimistic. (We tried both and came up with a range of life expectancy, from about 85 years old to 94.) Regardless of the precision (or lack of it) in these tools, the point is clear, says the article: “We shouldn’t just plan for our retirement savings to last for 10 years, but rather 20 or even 30 years.” It’s foolish to overreact to short-term market conditions.

Late-Life Healthcare Costs

Regular AgingOptions listeners have heard Rajiv Nagaich warn about this danger for years. “Beyond longevity,” says NextAvenue, “there’s another critical concern, according to Hou’s report: Many retirees don’t plan for late-life medical expenses, or they grossly underestimate what might be needed.”  The combination of rising costs, longer life expectancy, and more acute health care needs leaves millions of retirees dangerously unprepared.

An annual study by Fidelity estimates that, to be safe, a retired couple aged 65 in 2022 should project spending as much as $315,000 in after-tax dollars for late-life health care costs not covered by Medicare,” writes Freudenheim. “The cost of long-term care, such as the need for health care aides, can add up quickly.” Indeed, planning for ways to deal with costs of long-term care is a major theme in the AgingOptions LifePlanning Seminars.

A Financial Dashboard Helps You Prepare

As the NextAvenue article points out, risk tolerance is a highly individual emotion. As we think ahead to a span of retirement that can last three decades or longer, we need to be educated about risks and aware of their implications. That’s just one reason why Rajiv Nagaich strongly recommends that you work with a qualified, objective financial planner to prepare a financial dashboard.

“The dashboard is your crystal ball,” Rajiv explains. “It lets you examine at a glance how your saving, spending, and investing will work out over time – at various rates of return, various tax rates, and, yes, various years of life expectancy. What will your financial health be at 75, or 80, or 90 and beyond? Your financial dashboard can help you see at a glance how the decisions and assumptions you make today will affect your future.”

We encourage you to call us at AgingOptions. We can explain the financial dashboard concept, and refer you to a professional planner who will work with you to develop this powerful tool, personalized just for you.

Breaking News: Rajiv’s New Book is Here!

We have big news! The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public.  As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.

You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then this book is must-read.

Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more.

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.

Your retirement can be the exciting and fulfilling life you’ve always wanted it to be. Start by reading and sharing Rajiv’s important new book. And remember, Age On, everyone!

(originally reported at

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