IS PLANNING TO AGE 100 ENOUGH?

Ronald W. Rogé

SEVERAL MONTHS AGO, I was sitting in my dentist’s waiting room and spotted the cover of a National Geographic magazine, which said:THIS BABY WILL LIVE TO BE 120**It’s not hype. New science could lead to very long lives.

That future does not appear far off. Recently, I read a story in The Wall Street Journal about Jiroemon Kimura of Japan, who died at the age of 116 and 54 days. (I guess when you reach that age, the days count.) He is the third person on record to live past age 115.

As financial planners, my wife, Rosanne, and I have had a continuing series of discussions about longevity for almost 20 years. What is a reasonable mortality age that we should use in planning for our clients? We want to be careful; reasonably assured that that people will not outlive their money. But we also don’t want to create a burden, asking them to save so much that they won’t enjoy life while they can.

When I first started this business more than 25 years ago, I assumed that reasonable life expectancy was 85. I was being conservative. Back then, life expectancy statistics indicated that men, on average, would die in their mid-70s and women in their late 70s to early 80s. When Roe, who became a Certified Financial Gerontologist, joined my firm in 1995, she convinced me to increase the life expectancy assumption to age 90. After all, we had several clients who were approaching 90 and some who had relatives living well into their 90s.

Then, at the turn of the century, I was asked by TIAA/CREF, a well-known insurance company and pension plan manager for many large hospitals and universities, to serve on their advisory board of financial professionals. Over the next three years, I heard many presentations by TIAA/CREF’s research staff about increased longevity. Roe and I decided to increase our planning assumption to age 95.
But one day, while eating lunch with John Biggs, then CEO of TIAA/CREF, I asked him what age his company was using in their actuarial calculations for whole life insurance policies? He said, "You know, Ron, actuaries are very conservative people. Right now our biggest fear is the human genome project. We can’t quantify the impact it will have on longevity, so we’re using age 114.”

I almost fell off my chair. When I returned to the office the next day, Rosanne and I decided to raise our assumption to age 100. We knew we’d get plenty of pushback from clients, saying, "I’ll never live that long." But when we asked them whether anyone in their family was blessed with longevity and they gave it some thought ("Aunt Martha is 98 and doing well"), it actually seemed like a reasonable, if conservative, assumption.

So what does it mean, having to come up with a financial plan for living 15 to 20 years longer than previous generations? Well, here are some tips and strategies:

• Face reality–start saving much earlier to fund your retirement years.
• Plan on working much longer than the traditional retirement age of 65. Many of us will be more likely to phase out of work, rather than choose an abrupt retirement time. As one client told us, she would rather "wear out then rust out."
• Recognize that your investment "risk profile" does not change later in life. Everyone who’s saving for retirement has their own risk tolerance–that is, how comfortable they are with the possibility of losing money in order to maximize long-term gains. The way your brain is wired today is your tolerance for risk tomorrow, so knowing your risk tolerance will help you manage through the bear markets by staying fully invested, even during the worst of times.
• Plan on expenses remaining the same–or even increasing somewhat–during retirement. Don’t think for a minute your expenses will be substantially less; expenses just shift around. Commuting costs to work gets shifted into the additional vacations, now that you have the time to take them. The gym membership fee gets replaced with additional home care. At 65 you may not need a handyman to replace the batteries in the fire detector. At 80, you probably will.
• Forget about figuring out a "safe withdrawal rate"–the percentage of retirement funds you can withdraw annually, without facing the serious risk of running out of money in your later years. If you don’t know what you need to safely fund your retirement, why are you worried about the withdrawal rate? That’s the equivalent of having a car with no engine and worrying about what kind of mileage you will be getting. Talk to a qualified financial planner who can help you calculate what it will take for you to live to 100.
• Have some kind of long term care insurance policy. This is critical for most families, because later-life and end-of-life expenses can be astronomical. Premiums for long term care services should not only be part of your pre-retirement budget, but get carried over to your retirement budget.
• Reverse mortgages, should be a last resort. You should not rely on having one in your retirement, especially if you want to leave something to your children in your estate.

Even with such revisions in retirement planning, that National Geographic story has me thinking again. Is 100 years really enough? Right now, perhaps, but what will advances in medicine and technologies bring to human longevity over the next 5 to 10 years? Stay tuned.

Ronald W. Rogé, MS, CFP® is founder, chairman & CEO of R.W. Rogé & Company, Inc. a nationally recognized fee-only investment management and financial planning firm. Over the years he has been named to many lists of top wealth management advisers and is frequently quoted in the news media, including, The Wall Street Journal, Forbes, USA Today, Business Week, Money magazine and Fortune. His book, The Banker and the Fisherman: Lessons in Life, Wealth and Happiness in the 21st Century (with Roseanne Rogé and Steven M. Rogé) is available on Amazon. Contact: ron@rwroge.com.