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The Challenge of Living Longer

Insights

A recent article in Morningstar magazine discusses the recent trend towards increasing life expectancies.  The article points out that a couple, both age 65, have a greater life expectancy than either of the individuals by themselves.  A male aged 65 has a life expectancy today of 84.2 years.  A female aged 65 has a life expectancy of 87.5 years.  But a couple, both age 65, have a 63.5% chance that one of them will live to 90 and a 35.7% chance that one will live to age 95.

As technology advances and biomedical research accelerates at an ever increasing rate, we can foresee the inevitable upward adjustment in these numbers.  In another 10 years when I am writing this column, what life expectancy are we likely to see?  Some future-seers are projecting life expectancies in the range of 150 years!  Think of the possibilities and challenges.

What does retirement mean?  What is the ramification for Social Security and Medicare funding?  How about “Happy 100th Wedding Anniversary” cards?  The thoughts make our heads spin.

Let’s overlay this increasing life expectancy with a simple cost of living exercise.  Forty years ago in 1975, a first-class postage stamp cost 10 cents.  That same letter today costs 49 cents to mail.  The increase in postage rates is exactly equal to the 500% rise in the cost of living as represented by the Consumer Price Index published by the federal government.  If you or your spouse have a high percentage chance of living another 25-40 years, and the cost of living continues at the same rate, your living expenses will cost you FIVE TIMES what they cost now.

This begs the question – Are your savings and investments positioned to grow enough to offset this ever increasing cost of living?  When your pension and social security payments fail to grow enough to cover your cost of living, will you have the assets necessary to fund the shortfall?  And will you live longer than your money?

It is vitally important that you set aside a significant amount of money from each paycheck to fund your nest egg.  A nice number to be working with is 15% of your gross income each month.  It is just as vital that some of your nest egg be invested in those assets that have proven over the years to outpace the cost of living.  Let us know if we can help you to make that happen.