Mitigating Longevity Risk

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During today's show, we're going to discuss the risks of living too long. Hello, and welcome to Money Talks. My name's Ken Wink from Summit Financial. If you'd like more info about what you hear today during the show, give us a call, 586-226-2100, or you can go to our website, summitfc.net. While you're at the website, be sure to check out our podcast page. You can find us on Apple Podcasts, Spotify, or Amazon Music. So looking at my 24-year career... I don't know if I remember a time when a client told me they didn't want to live as long as possible. You know, nobody really says I want to die young. You know, why not? You work hard. You want to go on vacations. You want to spend time with your kids and family and friends. But the reality is the longer that you live, the more money that you're most likely going to need. So I think most of us like the idea of being healthy enough and feeling good enough to still go on vacations and have a ball when you're 90 years old. But your finances, they need to be pretty healthy, too, if you're going to make it that long. So during the show today, we're just going to talk about how we can manage that risk. But before we jump into it, let me introduce my co-host, Tony. I understand he's already plotting a retirement full of live music and vinyl record hunting and just having a ball.

Oh, yeah. Well, you know me well, Ken, obviously, but full disclosure, I don't plan on retiring anytime soon. And I've told you this before and I've told our listeners, I'm going to be doing this as long as my voice holds out or as long as you let me. So I am excited, though, for today's topic. I think we are living longer and longer. And I see this longevity issue. And it's funny because, you know, you said the title of the show today, you told me mitigating longevity risk. And I'm like, longevity risk. Longevity means living longer. Right. But but longevity risk makes it sound like living longer is a bad thing. And most people would think, well, living longer, that's great. Right. But as I like to say, Ken, you know, the good news is we're living longer. The bad news is we're living longer. You got it. Right? Because there are some negatives to living longer, sadly. And we're going to talk about how to address those. And they're mainly financial, right?

Yeah. Yeah, absolutely. I mean, obviously, if you live too long and you're not feeling the best, that there's that health risk or pain risk. But today, anyways, we're mainly just going to focus on the running out of money risk. Sure. You know, the fear is real. There are surveys that say that Some people are more scared of running out of money than they are actually dying. So like money is scarier than death itself. So we just want to, you know, overemphasize to people that retirement isn't a finish line. It's sort of an open road. And sometimes it's a really long road because of advances in medicine and better lifestyles and eating better and people are living longer. So like back in the 1950s, the average person just lived till about 68. And today it's closer to 79. And for women, it's actually 82. So definitely statistically, people are living a lot longer. So the big question is just are your finances going to go the distance? And there are some factors that you can control and there's some other things that you can't control. But if you have good planning and potentially you got a good financial advisor in your corner, you can stretch those dollars to go the distance and have the type of retirement that you want. Yeah.

Yeah. There you go. And I mean, people are living longer. My grandfather lived to 101. And Ken, I want to tell you, he was active through age 100. And I mean, active, like getting up every morning at 5 a.m., going out into the farmyard, wandering around. He went camping three months, two to three months before he passed. He was camping.

Was it glamping in a camper or was it?

No, it was in a camper. Yeah, no, it wasn't tent. It was it was a big fifth wheel. He had a big pull behind trailer. And at that point, he was wheel. He had he was not walking well, but he was camping. He still he was still going. He was driving when he turned 100. He still drove. Wow. So and that's a unique case. But more and more people are living to 100 all the time. And so, you know, and what skews the average life expectancy a couple of a few years ago, it skewed lower. And it was just because of the opioid crisis and covid. That actually skewed the numbers. But we are, without a doubt, living longer. I mean, people who make it to 65, like you say, there's a 50% chance you're going to see your 93rd birthday.

That's incredible, isn't it? It's crazy. Yeah. And it's good to hear that your grandpa lived until 100. So there's some tread left on the tire of this podcast, Tony. Yeah.

Yeah. If I if I on my dad's side, there is longevity all over the place. And so, yeah, I don't know if I'll inherit that. My grandfather didn't have the same pizza intake that I do, though. See, that could that could be that could be a factor. Right.

Absolutely. Absolutely. Well, when it comes to all this stuff, the number one question that we ask is just how long are you going to live as an individual? So when we sit down with our clients, we start asking questions. Nobody's got a crystal ball, but the more you understand about what's going on in your personal timeline or your personal family tree, that'll give you a better idea of whether you're going to outlive your money or not or if you're going to be comfortable. So take a look at your health. Take a look at your family history. Take a look at your lifestyle. All of these can help give you a better estimate of how long you might be around for. And then obviously you can look at your parents and your grandparents, aunts and uncles, and then take a look at who smoked, who drank a little bit, who drank a lot, who didn't drink. And you can sort of add and subtract years. And there's two tools that are out there that we recommend. So one is if you just go to, you can Google search at the Social Security Life Expectancy Calculator website. Um, that's sort of basic, but it'll give you sort of a, a ballpark. But the fun one, Tony, I did it myself is the blue zones. True vitality.

I did that one as well. That's awesome.

Yeah, it's it's cool how detailed I mean, it was asking, how often do you eat fast food? How many drinks do you have per week? How many hours of sleep do you get per night? And it jumps to all that stuff. So when I finish the test, you know, it takes into consideration what year you were born, what country you were born in. But for me, it said if I start eating more whole grains and less meat, I could last until age 96. So I might might be able to catch it.

Wow. Wow. Ninety six. I was I was way off. I lost a bet on that one. I thought your number would be in the 50s, maybe. No, I'm kidding. I'm kidding. You said fast food and drinking, right?

Yeah. We're calculated.

Yeah. Mine's a little lower, but not that bad. So I think mine would be a lot lower, but my family history helps. But I think those tools are great. And by the way, just to reiterate that Social Security, the Social Security Life Expectancy Calculator is available at ssa.gov. That's ssa.gov. And bluezones.com is the fun one. Bluezones.com. That's a really good one. You should check those out. And they're free. So those are really great tools to see what your longevity might be. I mean, again, like you said, nobody has a crystal ball, though.

Yeah. Still, still fun to look at. And yeah, I'm thinking about it all day. I almost stopped this morning on the way to work for a, a Taco Bell breakfast crunch wrap, but I just, I had oatmeal for breakfast instead. So it's going to be a positive.

You want to stay in the blue zone. Yeah. I want to stay in the blue zone.

Yep. So once you figure out how long you might live, you got to figure out how much retirement income you're going to need. So when people are looking at their expenses, the first thing you can do is just figure out what you're spending right now. And then for your average person, about 80% of what you're spending when you are working is what you'll need when you're retired. But again, everybody's situation is different. It depends upon your hobbies. It depends on whether you plan on traveling the world. We obviously have clients who want to golf at least once every single week, if not three or four times per week. So everything needs to sort of be adjusted. But that 80% rule is good for a lot of people. But if you want to retire in your 50s, you're going to have to stretch the money even farther. So you might want to plan for a bit more income and also keeping an eye on inflation.

Yeah. And, you know, we talk about rules of thumb like that 80 percent rule, but you're going to need a custom plan. That's just a starting point to get an idea. You're going to need to work with a financial professional like yourself and your team there to get an actual written plan in place that is based on your personal information. And that's going to be much better because it's customized to you. Everybody has different goals. Everybody has a different starting point, a different time horizon. So you you take all those things into consideration when you meet with people. Right.

Yeah, absolutely. We'll put a custom retirement income plan together, figure out the probability of success. We look at what the stock market did for the last hundred years, and then we randomize it a thousand times. So try to really run a lot of scenarios to see how successful are we based upon different life expectancies, spending, you know, and that's the fun thing, sitting down with clients and saying, okay, how much do you want to spend per year on vacations? Let's try it at 10,000. That looks great. Let's bump it up to 25,000. Now you're taking the family to Disney World, you know. There's so many different options that people have once they sort of play with it because they're so scared they're going to run out of money. But we're pretty confident in our models. And again, anything's possible. But if you got a model in your pocket, you're probably a little bit happier than if you don't. Right. The time of putting all that together.

Yeah, and social security is maximizing it. You even mentioned this, you have a report that you can run that will, it goes through thousands of calculations, right?

Right, yeah, so that's another tool in our toolbox is the ability to create a social security maximization report. So we will look at you, if you're married, we'll look at scenarios for both spouses, try and figure out which strategy makes the most sense, again, based upon your life expectancy. So, you know, Social Security obviously plays a really huge role in retirement. If you're single in the United States, on average, 70 percent of people get at least half of their income from Social Security. And for married couples, it's over 50 percent. So, you know, the lion's share of retirement income comes from Social Security. So you've got to make sure that you handle it properly and have the best strategy possible. So one of the strategies that we'll recommend for a lot of people is just wait. You know, just wait a little bit longer to turn it on. If you wait from age 62 to 70, you can boost it each year, especially in the later years, by as much as 8% per year. So from waiting from 62 until age 70, that can boost your Social Security up to 77%. So that's a pretty big raise. And one other quick bullet point on this is that if you're married, You got to remember when when one of the spouses passes away, the surviving spouse gets the higher of the two Social Security. So sometimes people just yesterday, somebody called me and asked me if my if my spouse dies, do I get both of them or, you know, so it's only one. It's the higher of the two. So, another potential savvy move is have the spouse that was making less turn theirs on at age 62, but then wait on the other spouse, the higher earner, until age 70. So, that way, the survivor benefit, because it'll be so much higher now, could really help out that spouse that survives. So, if you're married, you're not just on an island. You've got to be a team and try and come up with the best strategy that's going to help both of you fend off longevity risk and most solid income strategy possible.

Yeah. Yeah. And like you say, Social Security is the foundation and you have that report you can run. I would not if you're out there listening and you have yet to file for Social Security or you just recently did file. call Ken and the team there at Summit Financial because they can run that report for you and there's no charge, no obligation, and get a financial plan in place and see when works the best with everything. It's not, I think what the problem is with Social Security, a lot of people just don't They don't understand overall retirement planning and how everything affects everything else, like your Medicare, your Social Security, your investment stocks, your 401(k), taxes, health care costs, all these things intertwine and spousal benefits and what happens when you pass or, you know, if one spouse passes before the other, which is obviously... There's so many variables and they all tie together. What I'm trying to say is so many people just look at, OK, I need to when do I want to file for Social Security? And then they don't look. They're not looking at the same time at the big picture. And that's where you come in. It's like I always say, the most important piece of a puzzle is the box lid. A lot of people say it's the last piece. You ask them, what's the most important piece of the puzzle? And can you have the box lid with the big picture on it and can look at that picture? The individual, like my wife and I were sitting at our kitchen table and there's a thousand piece puzzle spread out. We don't have that box lid. We don't know how to look at that. We've never gone through the retirement process before. We haven't lived 20 years in retirement. You go through the retirement process and retirement with your clients all the time, day in and day out. That's where the value comes in. And I just I can't stress that enough that people need to work with a trusted financial professional who's a fiduciary. And you have a whole team of them there at Summit. And I just I really think and it starts with Social Security. But again, it's not I forget the term. There's a there's a phrase, but, you know, it's not an island. It's not an isolated thing to look at. Don't file for Social Security based on what your neighbor did with Social Security.

Right.

Or or you're one of your one of your relatives or a friend at work. I mean, your situation is unique and you've got to look at all those factors first.

Right. Right. Yeah. And absolutely taking longevity risk into it. Yeah.

I didn't mean to get on a soapbox there, but no.

Yeah. Don't mind me. I'm emailing my office manager to get my my business cards changed to Ken box lid wink.

Oh, yeah. The box lid. That's what you provide. I mean, people I just think that analogy works for what you do. Right. It does. Yeah.

I love it. And I agree that it's 100 percent appropriate.

So what's the next thing we need to worry about or look at as a tool to help mitigate longevity risk if we're going to live a while?

Yeah, so next thing I wanted to touch on was just a topic that sometimes stirs up some strong opinions, and that's annuities. And I feel like everyone has to at least think about whether an annuity makes sense for them or not. Learn a little bit about them, do some due diligence, and see what they're all about and whether it's a good fit for you. So at the very core, an annuity is designed to provide a guaranteed income, and in some cases, a guaranteed income for life. So the world is full of lots of swings and economic stuff and war and sometimes having that income coming in is worth it and provides some peace of mind. They've got a reputation. Some people hear them and they just want to run in the opposite direction. I personally think over 90% of annuities are trash. I think it is really, you know, that's a really strong statement, but I feel that there's a lot of financial advisors out there that recommend products based upon what's best for their commissions and not necessarily what's best for the client. So that's bad. And that's why they oftentimes get a bad reputation. But if you do enough due diligence and if your situation is correct, they do have a place in some people's portfolios. You know, some of these... they're not all created equal. Some of them have really high fees, are really complex, and just don't make sense. But some of them will just deliver a steady stream of income without a bunch of fine print. So just can't overemphasize to people enough to don't be scared of anything when it comes to retirement strategy. Do your due diligence. If you're working with a fiduciary, there's a good chance that things will turn out all right. And it may or may not make sense for you, but it's worth a look.

Right. And there are so many different kinds of annuities. People hear that word and they're like, oh, I heard that might not be good. They probably heard about a variable annuity, which has really high fees and can lose money versus one of the most popular retirement vehicles and tools that are being used by all the baby boomers who have retired or are retiring is a fixed index annuity, which have little to no fees. And they have principal protection, downside protection. They still have growth. So there are a lot of different things out there. Just work with a financial professional. I know you and your team will look at it and say, hey, this is for your situation. This is the best tool to use. Or for your situation, it's not. And especially those I know, those who are listening or viewing this, who already have an annuity, if they want to say, hey, am I in on the right thing here? Is this right for me? What can I do? You'll give them, you'll analyze where they're at in the annuities they have or policies they have, investments they have, and say, yeah, this is good. No, this one isn't, and help them out, right?

Yeah, the reason I use that 90% of annuities are trash phrase is because when we sit down with 10 clients who already have an annuity, eight or nine out of those 10 times, it is not a great one.

Yeah, they were sold something just so the person selling it could make a commission. And you guys aren't salespeople. You're just trying to put together an overall plan that's going to work the best for them. And I think that's the key difference there, isn't it?

Yeah, yeah, absolutely. And, you know, you touched on a couple of different types. There's there's good and bad, but we'll we'll help sort it out and look at fees and look at the benefits. And the most important thing for some people is just that income that will outlive the longevity risk, you know, overcoming what the whole topic of the show is about. So it's a tool in the toolbox.

Yeah, yeah, it is. So what about a flexible withdrawal rate?

Yeah. So the longer that you're in retirement, the more pressure you're technically putting on your portfolio to keep up with inflation and just keep you where you want to be. So one of the key players in this strategy is how fast are we pulling out money? How slow are we pulling out money and when do we pull it out? So when it comes to setting up your income for retirement, if you want to be sort of safe, or I guess the classic rule is 4%. So if you have 100 grand, for every 100 grand you have, you take out 4% per year. There's a classic guideline out there that says if you save about 25 to 30 times what your annual spending is, and then you withdraw 4% per year, adjusting for inflation, that will all work out. And that's a really simple and sort of clean way to start things out. but I really wanna talk to you guys about dynamic withdrawal strategies, which is another option for retirement that I really like. So basically you adjust your income based upon what's going on in the world. So if you have a really good year in the stock market, really good year in your portfolio, maybe you take a little bit more. Maybe now is the year you take that European cruise or that Alaskan cruise. And if the market takes a dip, now we tighten our belt a little bit, dial it back. Not because you're scared, but just because that's an actual strategy. Every successful investor will most likely tell you it's better to sell high rather than to sell low. So when things are going good, when the market's at the all-time high, take a little bit extra off the top. So an analogy that we'll sometimes use is that Your retirement income plan is not a train that's just going down the tracks and just going in a straight line. It should be more like a sailboat. If the conditions aren't great, maybe we adjust our sails a little bit, stay flexible. The wind's blowing this way, we got to move things a little bit. You know, we want to keep moving forward, but if the water gets choppy, if the wind gets a little windy, we can make some adjustments. So adjusting a retirement income plan on the fly based upon what's going on right now, I think is a very wise strategy to consider. There you go.

Well, I think you've given us a lot to think about, a lot of ways to help fund our retirement, especially if we're going to live into our 90s or even to 100 and more and more people are. So, Ken, this is a really important topic. Again, it sounds like The solution is work with a trusted financial services professional like yourself and get a solid plan in place based on your personal individualized situation, goals, needs, wants, things like that. So how can our listeners do that?

If our listeners would like to get a complimentary financial plan, including a retirement income plan, you can go to our website, summitfc.net, or just give us a call at 586-226-2100. We'd love to answer all your questions. Any concerns that you have about longevity risk, your own financial strategy, anything multi-generational planning, IRA to Roth IRA conversions, gifting to kids or grandkids, paying for education. You name it, Tony, we've got somebody on our team that can handle it.

Yeah, there you go. Well, Ken, great show today. Really enjoyed this topic. I think it's an important one. And listeners, thanks for tuning in. That does it for today's episode of Money Talks with our host, Ken Wink. Thank you for joining us for Money Talks. Don't head into retirement without a strategy that addresses both income and taxes. For more information, please contact Ken Wink at Summit Financial, working with people you trust. Call 586-226-2100 or visit SummitFC.net. Join us again soon for another episode of Money Talks.