My conversations with clients can be incredibly varied. However, one question that most people who seek financial advice have in common is the best way to plan for retirement.
After hundreds of discussions on this subject, I find that more often than not, people tend to make the same mistakes. Many clients expect that they are going to die too soon or they underestimate their longevity. Advances in medicine and healthier lifestyles have resulted in longer lifespans.
Consider the fact that if you were born in 1950, your average life expectancy is 68.2 years. Social Security information suggests that a child born in 2017 has an average life expectancy of 85.1 years. Think about that. In 67 years, the life expectancy of a child has increased by some 17 years.
If you were born in 1950, you might be sweating a bit reading that last paragraph because you are getting close to that life expectancy point. Life expectancies change the older you get. A 65-year-old male currently has a life expectancy of around 19.3 years and a female has a life expectancy around 21.6 years, according to the Social Security Administration.
But the story doesn’t end there. If you take a couple who are both 65, there is a 50% chance that one of them will actually live another 27.1 years. That’s right, despite all the jokes to the contrary, being married increases the odds of longevity of at least one of the spouses. There is some complicated math that goes along with this, but I won’t bore you.
Remember - life expectancy is an average. As such, 50% of the population should anticipate living longer than the stated life expectancy. The average 65-year-old couple needs to plan for a 27-year retirement period for at least one of them. The above average 65-year-old couple may need to plan for 30 years or longer. Despite that fact, let me share a typical conversation with a client planning for retirement.
Advisor: We need to discuss life expectancy. The longer you are going to be alive in retirement, the longer we need to plan for. Clients: Oh, we’ll be lucky to make it to 80.
Advisor: You may not realize it, but studies suggest that if you take a couple where both are 65, there is a 50% chance that one will live to 93 and a 25% chance that one will live to be 98. Clients: Yeah, well those studies don’t know us.
Advisor: That’s funny, most people say something similar. Do you smoke? Clients: No.
Advisor: Do you have any current health problems? Clients: No.
Advisor: Tell me a bit about your parents and how long they lived. Clients: Well, they are all still alive and in their late 80s, but they live differently than us.
And on and on it goes.
I actually have one client who was convinced she wouldn’t make it another 10 years due to a history with cancer. Guess what? Ten years has come and gone and she’s doing just fine.
Yes, you may have a health situation that warrants planning for a shorter lifespan. However, by default most of us are average so you should at least be thinking about the average lifespan. A good advisor needs to think beyond average. Face it, you don’t want to find out you’re above average only to have no money left.