Old money: How much will you need to live past 100?
Average life-expectancies are creeping upward. To prevent having more life than money, you need to think differently about your retirement years, experts say.
This post comes from Geoff Williams of partner site U.S. News & World Report.
Carmelo Flores Laura, a retired cattle and sheep herder in Bolivia, made news in mid-August when evidence surfaced that he may be the oldest person in the world, and the oldest person to have ever lived. He is believed to be 123.
Or not. Some reports have quoted gerontology experts casting serious doubt on the veracity of the documents showing Laura's age. (The experts state he is merely 107.) Nobody doubts, however, that the toothless Bolivian is old. He also isn't exactly living in the lap of luxury. As he presumably has his entire life, according to the Associated Press, Laura lives in a hut with a straw roof and a dirt floor.
Regardless, plenty of Americans worry about growing old and being forced to live in similar conditions. In 2010, a memorable poll by Allianz Life Insurance Company of North America stated that 61% of Americans were more fearful of their money running out than of dying.
For those of us who would like to live to 123 or some other ridiculously high number, and still have ample income, some personal finance experts suggest the following:
Start saving and investing young
Obvious advice, but it has to be said. The younger you start putting money away for your retirement, the more time you have to pile it up.
Figure out what your yearly income should be when you retire
"There are many factors that impact this calculation, such as lifestyle, culture and cost of living," says Brian Porter, a professor of management at Hope College in Holland, Mich., who specializes in accounting and finance. "A general consensus is that, once retired, an American investor should withdraw no more than 4% or 5% from retirement savings each year. For example, if an investor anticipates needing $100,000 per year -- not a large amount, considering inflation -- during retirement, the investor needs to save over $2 million."
Speaking of which: Remember inflation.
That is, when you're investing for your retirement, you really need to factor that in.
"Your investment portfolio shouldn't just include stocks and bonds, but real assets, including real estate, commodities and certain hedged strategies," says Allan Flader, a financial adviser with RBC Wealth Management, a financial advisory firm for the affluent and high-net-worth, headquartered in Phoenix. Having some assets that are inflation-adjusted is a must, Flader says. "Otherwise, inflation can kill you."
No kidding. Porter has done the math."An individual who is 22 years of age, planning to retire at 67 -- 45 years in the future -- will face an average price increase by 378%, assuming an annual inflation rate of 3%," Porter says. "If the person lives until 90 –- 68 years in the future –- prices will be 746% greater."
And if this hypothetical 22-year-old makes it to 123? Porter says average prices will be 1,980% greater.
More specifically and practically, Porter explains that if our 22-year-old lives on $40,000 a year in 2013 and wants an equivalent lifestyle in 45 years, he or she will be spending $151,264 a year by 2058 –- and $298,538 in annual income 68 years from now (in the year 2081). And if that 22-year-old does live to be 123 (the year 2114), he or she would need $791,808 per year.
Put another way, Porter says, the gallon of milk that costs $3.50 today (at least in some parts of the country) will, if inflation continues increasing 3% every year, cost $13.34 by 2058, when that 22-year-old is 67. And 101 years from now, that milk will conceivably cost $69.28 a gallon.
Your retirement plan needs to be flexible
You hear that a lot from financial advisers. The reason is that even if we don't have hovercraft skateboards and space buses to Mars in the near or distant future, the financial products available at age 123 will certainly look markedly different than they do now.
"Whether the time frame in which you're retired is 30 or 60 years, things will change," says Dan Danford, CEO of the Family Investment Center, a commission-free investment firm in St. Joseph, Mo. "Retirees need to maintain enough flexibility to adjust when they do. Inflation-adjusted bonds are one good example. They didn't even exist when my father retired in the mid-1980s. Exchange-traded funds are another example. What other helpful new products will come along before 2043? Without flexibility, how can you include new products when they do come along?"
You need to be flexible, too
If you're going to live off 4% or 5% of your nest egg annually, ideally you will have plenty of cushion built in, so you can only take, say, 3% if you need to. That's because your retirement fund needs to be robust enough to withstand the Great Recession of 2039 or the Great Depression of 2051 or whatever the economy dishes out.
"Try to cut back in the down years to make your money last," Flader advises.
Of course, it's impossible to offer up an actual number on what someone needs for their retirement. Some people are better at living on less than others. But you may want more than you think you will.
Consider that just this week, MSN Money ran an article about 102-year-old Floyd Pullin, of Confluence, Pa., who purchased a new Ford pickup truck -- his 16th Ford in a span of more than 80 years. It doesn't take much imagination to assume that saving for a retirement that lasts into the 120s may some day become the norm.
More from U.S. News & World Report:
Life insurance coverage with most companies end at age 100, whole life. Others end before age 100. You must consider that in your retirement plan.
Why in the world would anyone want to live to be 100 years old or beyond???
with Monsanto and the GMO, the raise of cancer and diseases we are lucky if we can get to are 70 birthday, and less not forget Americans have to work, hard long hours and even 2 jobs, to "survive", (we are paying off the corruption and greed, lavish style of the rich to politician and corporations ), this is another way to try to convince us, the we can live longer, and rise the years till your retirement,
hey they needs your tax money, and they are going to squeezes you dried like an orange.
Monsanto should be paying for are health insurance, if they want us to live to 100(since they are the one shorting are life cycle with there Man made food)
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