Will you live to 100?

(And how to think about the financial risk of living a long life)

Many of us know people who have lived to 100, and we have a sense more are living that long. The sense is accurate.

Emma Morano, who lived in Italy, passed away earlier this year at the age of 117. With her passing, there is nobody on earth who was born in the 1800s. We can hardly begin to appreciate the changes she had seen during her lifetime.

Unless we are already close to 100, though, the odds of us hitting 100 are still low. Sorry about that… And unfortunately, we all still need to plan for an increasingly long retirement.

On average, “retirement” will last longer than most people expect. But, obviously, nobody knows exactly what will happen in their particular situation.

I’m an actuary, and we work hard to understand and illustrate the implications of many, many risks, including the risk of outliving retirement savings.

So how much do you need to save to retire? In my opinion, that is absolutely the number one financial question we ask ourselves, and is the number one question insurance companies, investment companies and our financial sales professionals attempt to answer for us.

Here’s a precious picture of my wife’s two grandmothers, both in their upper 90’s at the time.

One lived to be 99 and the other 100. They were friends for decades.

AS YOU STRUGGLE WITH THIS QUESTION over time, or with a sales professional, I want you to know that, fortunately, there is an important financial product that can help manage the uncertainty of how long you live.   

This financial tool goes by a few different names. It is technically referred to as an “immediate” or “payout” annuity, and it may also be referred to as “annuitization” or “longevity insurance”.

If you hear or see these terms, here is what is being offered:

  • For a given amount of money you pay, you receive a monthly income for the rest of your life. Guaranteed. You don’t need to worry about running out of money, or having too much left over when you die. You don’t need to worry about the economy, interest rates, or investments. You get a monthly income for life – no more and no less.   

Actuaries figure it out so that it all balances out for those who live a shorter versus longer time – so everyone receives the monthly income they were promised by the life insurance company, the only entity that can make these guarantees.

As you can imagine, there are many variations on the theme. You can add guarantees to assure you get at least a certain number of monthly payments. You can add another person like your spouse to the mix, so payments continue if either of you is alive.

You can set it up so that the monthly payments grow with inflation. And so on. The level of your monthly income will, however, depend on the variation you choose. Recall that in an earlier blog, I explained that the purpose of insurance is to reduce financial uncertainty.

This type of insurance virtually erases uncertainty concerning monthly income being available in retirement.

Now, perhaps, the discouraging part of this story; one generally needs a surprisingly large sum of money to buy the guaranteed monthly lifetime income needed or desired.

That’s where long-term savings and investments, budgeting, and other financial planning enter the picture.   

 …and that is blog material for another time.          

Karl can work to help you clarify the questions and issues in your mind, so that you have confidence as you consider insurance buying questions.

I hope this information has been helpful for you - but I’m sure you still have additional thoughts or questions.

Give me a call at 503.902.5320 or reach out through my website so that we can set up some time to go over your situation and work on coming up with the best solution for you.