Paul Ferraresi

I find that people who have not saved properly for retirement always rebuff my comment to build a retirement fund assuming you will live to be 100. They laugh it off and I say…but, what happens if you do live to be 100? What is your plan? The fastest growing segment of Americans is those living past the age of 100.

A host of experts are predicting what the future will bring. Ken Dychtwald, a leading “age wave” expert, characterized the 10 physical, social, spiritual, economic, and political crises we will face as we age in the 21st century in the following list. (You can learn more at www.agewave.com.)

1. A Pandemic of Chronic Disease
2. Mass Dementia
3. The Caregiving Crunch
4. Coping With Death and Dying
5. “Gerassic Park”
6. An Inhospitable Marketplace
7. Changing Markers of Old Age
8. Financial Insecurity
9. Age Wars
10. Elder Wasteland

Let’s hear what Dr. Dychtwald has to say about one of these issues, #5. What about “Gerassic Park”? As Dychtwald writes,

All future-oriented public policy in America, including policy regarding Social Security and Medicare, is based on the assumption that there will be no meaningful breakthroughs that will affect longevity or biological aging. So what happens if we wake up tomorrow morning and there is a breakthrough?

Might it be a “Gerassic Park” in which, instead of cloning entire humans, we find a way to clone organs? What if we learn to manipulate the body’s immune system to increase longevity? Can we imagine a future without cancer, a world without Alzheimer’s or heart disease? It is possible…. The biotechnology century is coming; we should expect the unexpected.

–Dr. Ken Dychtwald, “THE 10 PHYSICAL, SOCIAL, SPIRITUAL, ECONOMIC, AND POLITICAL CRISES THE BOOMERS WILL FACE AS THEY AGE IN THE 21ST CENTURY,” American Society on Aging (www.asaging.org)

I see medical breakthroughs each day. That is why, as a Certified Financial Planner, I am bound to do planning for my clients assuming a life expectancy of 120 years.

You may think that living 120 years is far-fetched. When I was in my early teen years, as my grandfather retired at age 65, it was expected he would be dead by age 70. Over the past 50 years, with medical advances, the Insurance Institute states that a married couple reaching age 65 can expect one of the spouses will easily live to the age of 95.

Better plan for at least 30-40 years of retirement funding.

Discipline or regret!

I find that as each new year comes, people often state, “Gee, where did the year go? It went by so quickly.” And yet, other times people bemoan that things are moving too slowly. Since we, in general, are here on this planet for 100 years and then pass away for eternity…here is a glimpse of how long eternity is….

“In the cold northern wastes there is a mountain a thousand miles long, a thousand miles high. Once each thousand years a small bird flies north. This small bird flies north to sharpen his beak on the cold hard stone of the mountain. When the mountain is thusly worn down, one second of eternity shall have passed.” –Tibetan Poem

One of the greatest frustrations I experience is trying to get clients to accept that they will live a long time after retirement.

In the past 25 years, medical breakthroughs, such as stents, have extended people’s lives without debilitating surgery. Weekly, you see in the media celebrities or the “average person” living well into their 100’s. In fact, the fastest growing segment of Americans are those living past age 100.

So how do you plan financially for this event? You work from age 25 to age 65…a mere 40 years to accumulate enough money to live 35 or 40 years after retirement. Funny, if you save 10% of your gross income in your working years, and, assuming no rate of return (common today in bank accounts) for the 40 years of work…you will have, at 65, four years’ worth of monies after retirement. If you save 25% of your gross, with the same factors, you will have 10 years of living expenses available at retirement. Both scenarios assume no inflation.

The authors of a new study, The Problem With Living Too Long, from the Institutional Retirement Income Council, report half of all females who are aged 65 today will live to almost 88. Thus, if you, as a 65-year-old female, guess you will live to be 88, then, that gives you only a 50/50 chance of not outliving your income. Statistically, a quarter of those women will live five years past age 88 and 10% will live to age 98. So, if you want a 90% certainty of how long you will live…better use age 98.

You are playing with loaded dice if you say, well, I’ll be dead at 85 and so I only need to plan financially until then. How will you pay your bills when you live longer? Are you going to call on your kids to fund your lifestyle? (They probably will be retired themselves.)

The better choice is for people to work longer, save more, or live on less now. This funding requirement should not be a surprise to anyone. You have had your entire lifetime to plan for your retirement.

Sit down with a professional advisor…this week, and have them map out at least a “rough and dirty” template as to the path you are on. I have done scenarios over the years where people have only a projected 5-30% of what they will need in retirement. They are in shock since they never thought about it. (Must be because they are too concerned over who will win on Dancing With the Stars.)

Start now…a small change can produce tremendous results.

The chart below will give you an idea of what you can expect:

THE LIFE EXPECTANCY GAMBLE
10% of all 65-year-olds will live into their 90s

65-year-old males:

50% will live to 85.99 — 25% will live to 90.78 — 10% will live to 94.74

65-year-old females:

50% will live to 87.97 — 25% will live to 93.17 — 10% will live to 97.64

65-year-old joint life expectancy*:

50% will live to 91.07 — 25% will live to 95.07 — 10% will live to 98.80

Source: Actuarial Consultants Inc. Data is based on 2013 mortality rates for people who do not hold annuities using IRS projections based on July 2000 tables from the Society of Actuaries.
*At least one spouse will live to the age indicated.

You can deal with this issue like the “ant or the grasshopper.”

Ah yes…discipline or regret.

Most colleges use the FAFSA Form as the only item for assigning need-based financial aid. About 300 colleges (private schools) use a formula called the “institutional methodology” which also requires the CSS/Financial Aid Profile application. The CSS Profile asks for more detailed data about a family’s income, assets, and resources not required on the FAFSA form. This additional information includes your home equity and your retirement accounts.

(For years, in this blog we have advocated the extraction of the maximum equity from your home and withdrawal from your qualified plan. Take these funds and place them in a tax free investment vehicle that is not a countable asset for college funding, Medicare or Social Security. Contact us for more information.)

Colleges that use the FAFSA will determine financial needs based on your expected family contribution. The formula looks like this: Cost of Attendance minus Expected Family Contribution equals Financial Need.

Do not be tricked into putting a lot of assets into a child’s name. If you do, colleges will demand:
• The child use 35% of their assets for college before any aid is given to the family. If the asset is held in the parent’s name, then only 5.6% of that asset must be used before aid is given.
• If the child does not go to college, they can spend that asset as they please. Remember: You gifted the asset to them. Let’s see…would the child choose a new red sports car, or, would the child use the money for college? DUH!

Many private schools use the institutional method which counts home equity as an asset. If you have, say, $300,000 of home equity, it will be assessed at 5.6%, which means a difference of $17,000 in expected family contribution you will pay before getting any aid.

Keep in mind, many private schools cost in excess of $53,000 per year (without taking into consideration personal expenses of the child; e.g., football game tickets, new clothes, special events, etc.). Add in your retirement plan assets as being assessed in the formula, and parents will have a huge amount of Expected Family Contribution.

Public schools are making it so students have to go five or six years to complete their degree which pushes up these costs, also.

The best time to start saving for college is before the newborn leaves the hospital to go home with you.

Of the early astronauts who went to the moon, all had psychological problems upon their return. They drank too much or somehow got into trouble. The main reason was: where do you go, now that you have been to the moon? Later in the space program NASA made sure all astronauts had plenty of projects to keep them busy after their return from the moon.

It’s the same for you and me and our goals: once you complete them, make another list. My father lived to be 83 years old. You can’t imagine the goals he had at 83: get his driver’s license renewed. He got it renewed for four years.

• How far into the future should you plan? As far as you can.
• How many books should you read? As many as you can.
• How many friends should you make? As many as you can.
• How much should you earn? As much as you can.
• What should you try to be? All you possibly can.

The purpose of this exercise is to stretch you, get you to think, get you to wonder, ponder…. I wonder what would be possible if I could get everything I wanted. What would it be like?

Goals for Personal Accomplishment
Once I reached eight years old, the fires were lit for me and they have never gone out. Since I was eight years old, no one ever said to me, “When are you going to get going? When are you going to get off the couch? When are you going to get off the dime?” I only hear, “When are you going to slow down? You can’t do that many things. You’ll have a heart attack and die.”

It’s easy to get lazy in designing the day, the month, the year, or your life. It’s easy to cross your fingers and hope it all works out. The way to keep this up and not get lazy is to teach it to others; e.g., your family.

The Why Is Important
Pick out the top four goals you want to complete by the end of this year. Then, write a short paragraph:

“Why These Four Goals Are Important to Me.”

When the Why gets big, powerful, and strong…

The How Seems to be So Much Easier
Without a strong enough Why, the How seems too difficult to accomplish. How do you manage your time? If you had strong and powerful goals you would figure out how to manage your time if it was worth it. If it wasn’t worth it, why bother struggling with the art of managing your time if it really doesn’t matter?

We are now approaching the final quarter of this year. How are you doing on the goals you set nine months ago? Take this short quiz to determine your priorities and finish the year strong – even if it means completing only one of your goals.

1. You win $100 million in the lottery. What would you do with the money? What would you change in your life? What would you do differently?
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2. If you knew you had only five years left to live, what would you change in your life?
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3. If you found you had only 24 hours left to live, what would you regret not having done; regret not having had; or regret not having been in your life?
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