Will you Outlive Your Money?

26 Sep

Could underestimating your longevity mean you’ll run out of retirement money?

At age 65, the average life expectancy is 81.8 years for a man and 84.8 years for a woman. At age 75, the average life expectancy is 85.5 years for a man and 87.6 years for a woman. Note that as you grow older, you’re expcted to live longer!  With recent advances in medical science, it’s no longer a stretch to think that you could live to be 100. In fact, the US Census Bureau projects that by 2050 there will be nearly one million centenarians.

No one wants to die sooner, so that’s great news. The problem: If your retirement plan doesn’t recognize the possibility of a long retirement, then you could potentially outlive your money. But read on for a solution.

Consider the following hypothetical example. Assume you’re 64 years old and earn $60,000 per year. You plan to retire next year at age 65. You’ve accumulated $1,000,000 in retirement savings, which you think will return a hypothetical six percent per year throughout your retirement. And, you have a $60,000 annual retirement need (excluding Social Security). If you have a 15-year retirement from ages 65 to 80, you’ll have no shortfall in retirement funds; in fact, you’ll end up with almost $696,000 to pass on to your heirs. On the other hand, if you have a 30-year retirement from ages 65 to 95, you’ll run out of money at age 83 as the table below illustrates. Of course, this example  is hypothetical and for illustrative purposes only. It is not meant to represent the performance of any particular product.

Age

Savings

Retirement Savings Needed

64

$1,000,000.00

$0.00

64

$1,059,999.94

$0.00

66

$1,058,028.28

$61,860.00

67

$1,053,905.60

$63,777.66

68

$1,047,439.82

$65,754.77

69

$1,038,425.39

$67,793.17

70

$1,026,642.42

$69,894.76

71

$1,011,855.72

$72,061.50

72

$993,813.88

$74,295.41

73

$972,248.18

$76,598.57

74

$946,871.51

$78,973.12

75

$917,377.18

$81,421.29

76

$883,437.69

$83,945.35

77

$844,703.39

$86,547.66

78

$800,801.08

$89,230.64

79

$751,332.50

$91,996.79

80

$695,872.80

$94,848.69

81

$633,968.79

$97,789.00

82

$565,137.20

$100,820.46

83

$488,862.75

$103,945.90

84

$404,596.18

$107,168.22

85

$311,752.06

$110,490.44

86

$209,706.59

$113,915.65

87

$97,795.12

$117,447.03

88

$0.00

$0.00

Source: Burling Bank. Assumes $1,000,000 in retirement savings has already been accumulated; another $60,000 is added. The money grows at a hypothetical 6 percent pear year; $60,000 (in today’s dollars) in withdrawn each year. This example above is hypothetical and for illustrative purposes only. It is not meant to represent performance of any particular product.

Because the risk of outliving your funds is real, annuitization may be an option.  Annuitization is the process of converting your assets into an income stream.  For example, maybe you plan to leave your heairs$250,000.  You could turn that $250,000 into an income stream you cannot outlive with an immediate annuity.  For example, a femaelage 70 could invest $250,000 into an immediate annuity and get $1765 a month for life — an income she cannot outlive.  To see the amount you can receive, use the immediate annuity calculator.

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