How to avoid outliving your money
By Gordon Powers, Sympatico / MSN Finance
When it comes to retirement planning, most people think in terms of scrambling to put something aside early enough to take advantage of compound interest.
But, once you switch from the savings stage to the spending stage, the math is entirely different, says Jim Otar, an advisor who spends a lot of his time counselling advisors on what they should be telling their clients when it come to not outliving your money.
Here are his top three challenges for those leaving work … and the people trying to help them plan the journey.
Living too long. Not only are boomers living longer than previous generations but, unlike their parents who had pensions to support them into old age, less than 35% of baby boomers will retire with guaranteed pensions. That’s why, when looking out, it’s important to use an age of death that might otherwise seem a bit optimistic. In most cases, that means planning until age 95, Otar suggests. Don't look at the average life expectancy, because it only tells you the age at which half of all people die, he adds.
Not taking any risk. The amount of risk you assume in your portfolio determines how likely you are to run out of money. In his analyses, Otar suggests that the sustainability of income has to have a high probability of success, 90% or better. In other words the probability of going broke can be no more 10%.
Less than this expected success rate can lead to irreversible calamities, he says, since you need a solid buffer to recover from even a routine market correction – like the one we’ve recently been enjoying. At the same time, that generally means still having at least a third of your money in stocks long after your retirement party.
Ignoring inflation. It’s essential that you protect your purchasing power, Otar maintains. That means ensuring that any calculations are in constant dollars when considering the amount you hope to withdraw. One approach is to use annuities whose payouts are adjusted annually to cover inflation even though their initial payout rate is much lower than for fixed annuities.
What’s the last thing you do before you climb on a ladder? You shake it, of course. For a glimpse of your possible future, test out a free trial version of Otar’s Retirement Optimizer here. It uses actual historical data going back to 1900 to work out how your nest egg would have survived beginning in each of those years.
Posted by: Alex | Jun 8, 2021 10:39:38 AM
The solution is simple...do not excersise, follow north american diet, smoke and drink...that shoud just about do it...you will expire way before the money runs out...
Posted by: JDR | Jun 8, 2021 1:40:24 PM
That's why I have a gun...
Posted by: David | Jun 8, 2021 3:04:26 PM
That's easy. "Live Very Cheaply". At any adult age, or when you turn 60 or 65. Then how do you do that you may say?? Considering you have no young children, buy a inexpensive second-hand cheap but well maintaned "Holiday Trailer"(or "Fifth Wheel") in good shape to tow behing your vehicle OR like a good second-hand RoadTrek CamperVan. Live in it FULL TIME, permanently. Stay away from the more expensive daily rates, and always ask for the much cheaper weekly and monthly rates at RV Parks-Trailer Parks. Also find cheaper or free places to park and sleep. Like at free campsites, a person you know--on their property--in front of their house, a truck stop, the bush, something like a $50 permit to camp in the Arizona desert for 2 weeks, etc.
>>It is very cheap living<< with no taxes, no power, no water, no natural gas, no phone bill(can have only a cell phone), you could have a travelling Satellite StarChoice TV dish which are available if you want to, a reasonable RV park fee "that includes" water-power hook up also sewer hook up--showers and toilets, and shop for food at grocery stores-cook your own meals in the RV, and if you want to you can use paper plates-bowls and plastic forks-spoons.
How do you do that?? 6 months in Canada where our Health Care is good and then 6 months in the USA during the winter from about November 1st to April 30th, living very cheaply in RV parks in weekly-monthly rates, cooking your own meals. Otherwise all you need is 6 months US health insurance, gas money, groceries, vehicle registration and insurance, and repairs. About a $1,300/month(or it is more for 2 people being a couple, up to $2,600/month then) "government pension" should easily cover all of these expenses, living frugally. Better if you have some more money savings also, but not necessary.
If you do not want to go to the US in the winter. The RV parks are open all winter long(12 months of the year) on Vancouver Island at cheap reduced winter rates. All you need is a "small electric heater plugged in" that the RV park pays for the power. You can live very comfortably in an RV on Vancouver Island all winter long with no problem at all.
Posted by: elmo | Jun 8, 2021 5:13:59 PM
Yep, that's the trick to living, by not living large or being happy. Be miserable for the rest of your life with the regret of not living life to it's potential. Yep, tuck all your money away, folks, don't enjoy things in life, die rich!
Posted by: Ed | Jun 8, 2021 10:01:23 PM
Forgot to mention, the most important solution:
Actuaries, have now proven conclusively, the early death, almost totaly,
removes, the risk..l
Posted by: Stan | Jun 8, 2021 11:46:38 PM
satarically: Become a CEO, or a Senior Executive,or a representive on the Board of directors. Your pay will be higher then the best Medical Doctor Practicioner.You don't have to pay for offices or staff. You don't have to pay and carry malpractice insurance in case you screw up, You don't have to take time off to keep up with changes. When you attend conferences your hotel, meals, and travel are picked up by the corporation. I like many others have put away money for our retirement I can not say for certain that I put away enough. But while other were out there enjoying themselves to the fullest I kept saving for my golden years. I do know one thing for certain I will not be retiring with the buying power that my parents have.
Posted by: Joe | Jun 9, 2021 12:25:15 AM
Meet a rich lady.
Posted by: kim kraut | Jun 9, 2021 10:46:31 AM
There was a comment about travel insurance!
For anyone taking a trip to the US or any place outside of Canada you can be sure you will get no coverage from your term isurance when you're sick in the hospital or injured or forget your medication or just need medical help. The advise given is poor and I have experienced first hand the importance of travel insurance with my child who became very ill will we were away on a family vacation in the US.
Many of our customers are advised to take travel insurance for there own protection, as the services in the US are costly. These procedures can easily bankrupt you if you should have the misfortune of ending up in the hospitol for any period of time as all sevices are; shall we say al a carte.
My term insurance sure would not help me, and my Manitoba coverage would only pay me a portion of my costs if not for the travel insurance that we had taken to cover for the unexpected situations that can happen to any one at any age.
I sure hope people are not so foolish as to take danagerous advise because after they find out there term insurance does not cover for sickness and accident they will surely see what it means to be in the poor house. This is Kim Kraut telling you how it really is !
Posted by: kim kraut | Jun 9, 2021 11:08:16 AM
10 ways we lose money.
You folks have posted that Travel Insurance is a waste of money and your term insurance will cover you.
This would really be a dis service to the public to follow this advise.
We advise to ever person that is traveling to the US or abroad unless they have without a doubt a group insurance coverage that will cover them outside of Canada . We would get customers to sign a form if they refuse to obtain coverage.
The purpose of coverage is provide you with the coverage you need for sickness, accident, and even death. If you end up in the hospitol your term insurance coverage will not pay the bill!
The advise of going without this protection can leave a person in the poor house or worse!
For a small amount of money you protect yourself and your loved ones.
I have experienced first hand what its like to have a medical emergency and end up with a loved one in the hospitol for a extra unexpected week.
Do you folks know what a week can cost in a US hospitol, extra hotel charges, rearrangaed air travel all covered under your vital travel insurance package.
My advise is that you can not leave home without this valuable coverage, as if you do; you will surely understand the words pennywise and dollar foolish.
Also, having a travel agent to guide you during any trip is a service, after all we are hear to watch your back even when you do'nt. So hears looking at you kid!
Posted by: Mike | Jun 10, 2021 10:29:35 AM
Nice point Elmo on living life to the fullest .... NOT! Telling everyone to live thier lives to the fullest is the reason we had to implement health care and CPP in the first place, people were too slack in taking care of their own futures and fell into complete unplanned poverty. It's also the short term cash-in mentality that continues to be the cause a lot of unecessary problems, like, say, the current financial crisis?
And what about your kids / future generations? Gonna leave them nothing too? Except maybe a generation of excess to clean up after? Heck, if you play your cards right, maybe your kids will pick up your medical bills and funeral expenses....
Life is pay now, or pay later. You'll just pay later. The nice thing about reality is how predictable these kinds of choices are.
Posted by: elmo | Jun 10, 2021 6:28:59 PM
@Mike....
First of all, the financial troubles of today are due the subprime mortgage market in the US of A. These debt's were sold at triple A ratings and everyone scooped them up until the mortgage market bottomed out.
Second of all, you only live once, and why not live for today BUT at the same time plan for tomorrow.
You can take my previous posting any way you want as it's your interpretation and if you cannot comprehend the meaning behind the words I'm not sure what else to say!
As for reality, the choices we make are not predictable as you say it is.
My momma always says life is like a box of chocolates, you never know what your gonna get.
-- Forest Gump
I'll say it over and over again, live life and don't look back, life is too short.
I appreciate and welcome your opinions.
Posted by: Peter Pan | Jun 12, 2021 1:29:51 PM
There is one major problem with any type of financial planning.......INFLATION
INFLATION...is the decline in the purchasing value of our currency..Think of it as stuff does not really cost more it just takes more dollars as the currency is worth less.
The current financial crisis has resulted in the government putting more money into the system which will result in price increases for just about everything. HOW MUCH....I don't know but it could be as much as ten times as much.....think a dollar is worth a dime so you will need 10 times as much money. ( this is basically the what has happened since 1972 when the US went off the gold standard). It used to take $38 to buy an ounce of gold and now it takes about $1000 to buy the same ounce of gold. Compare just about anything you like and the result will be similar. Project the same thing forward for another 30 years and you will get a realistic idea of the future value of the currency. The costs of health care etc ....in high demand by aging baby boomers will probably increase even faster than most things.
The solution?????
Protect your savings from the ravages of inflation by taking the risk of buying things now as investments which can be sold decades from now at the inflated prices. Think of dollars as a medium of exchange and real goods as a store of value. It is not dollars you will need but purchasing power.
What goods will hold their value??????.....whatever will be in demand decades in the future. Prepay fixed living expenses.
The real problem is progressive taxes....the government will tax the increase in price of goods even though their real value has not increased much, just priced higher in terms of the inflated currency. Think of it a confiscation through excessive taxation. It is a way of transfering wealth from private individuals to governments to spend.
The economic crisis in North America is just begining for the poor and middle class.
Posted by: Susan | Jun 12, 2021 4:18:24 PM
A third of your money in STOCKS after retirement? I just read an article ON THIS BOARD about how 75% of stocks are solid losers over time. The top 25% accounts for all the gains. But there is no way of predicting what will be in that top 25%.
More suspect advice meant to scare people into taking on more risk that they should in order to enrich the financial industry. Ignore it.