We clearly need to add “outliving our savings” to the ever-lengthening list of future risks. Gold Bugs, that means turbocharge your…
The most common retirement plan involves making some reasonable investment-return assumptions and then structuring your annual spending to run your nest egg down to zero at age 90 or thereabouts. Ideally, you spend your last dollar on the day you take your last breath.
This works, at least in general terms, because relatively few people live into their 90s. But — in a world where everything else is changing — how solid is that lifespan assumption, and how would its extension affect the typical retirement plan? Consider the mixed feelings of an 85-year-old (and his or her family) if a pill comes along that adds an extra 20 years to life expectancy — without adding a commensurate amount to the recipient’s net worth. In return for those extra years, our hypothetical retiree has morphed from “sunset of a well-planned life” to “massive long-term burden on family and/or taxpayers”.
That’s not how most people want to go out, but it could indeed happen, according to last week’s Wall Street Journal:
A magic pill that “makes life expectancy jump from 80 years to 150” isn’t likely, says Steven Austad, senior scientific director of the nonprofit American Federation for Aging Research in New York and chair of the biology department at University of Alabama at Birmingham. But a 10% to 20% increase in lifespan beyond the current roughly 80-year average in the U.S. for men and women “is quite conceivable,” he says.
Academic research centers and biotechnology companies are piling into the antiaging field in pursuit of the longevity dream. They are backed in part by a $3 billion annual budget for the U.S. National Institute of Aging as well as some high-profile billionaires and other venture capital investors.
We clearly need to add “outliving our savings” to the ever-lengthening list of future risks. But dealing with this one is fairly straightforward mathematically. Just bump up the target age where you zero out your savings, to 100 or maybe 110. Plan on spending less in each retirement year, working longer before retiring, and — most important — saving like crazy along the way (gold bugs, that means turbocharge your stacking).
The new goal: Enough cash on hand for a couple of extra decades to be a blessing, not a curse.