When it comes to retirement, there are a variety of risks that threaten to derail the goals that you have worked so hard to achieve. Although it’s important to consider a number of risks, including mortality risk, market risk, interest rate risk, and purchasing power risk, be careful not to overlook the most significant threat to a fulfilling and successful retirement — longevity risk.
Longevity risk is the risk that you could live a long, healthy, and vibrant life through your 80s, 90s, and beyond — in other words, living so long that you outlive your assets. It’s easy to get caught up in the day-to-day risks you encounter while failing to consider the impact of a longer than anticipated life.
Your financial advisor can play a key role in helping you understand and address the impact of longevity risk. Talk to him or her about your life expectancy, including how long your family members lived and how your lifestyle compares to theirs. Be sure to cover such topics as Medicare, long-term care, and life insurance.
Since Social Security is a lifetime government-guaranteed, inflation-adjusted income stream, it will help you address your longevity risk. If you are married, be certain the household breadwinner (the spouse with the higher Social Security benefit) understands his or her Social Security is a second-to-die proposition, because it will be paid out until the second spouse passes away. You can also discuss how Social Security addresses purchasing power risk and how it contains no interest rate risk, no inflation risk, and no market risk.
At Stifel, we can generate a Stifel Wealth Strategist Report® for you. If you are concerned about longevity, your advisor can run your analysis out to your 100th birthday or later. At the very least, you should run your plan until your life expectancy. Your report will incorporate future health care costs, including Medicare, deductibles, co-pays, hearing coverage, vision coverage, and dental coverage. If you have or intend to purchase long-term care insurance, you will want these premiums delineated in your plan.
Longevity risk is not always a priority for recent retirees as they excitedly go about their new lives focusing on travel, grandchildren, and other leisurely pursuits. However, you will do yourself and your loved ones a tremendous favor when you consider and plan for longevity risk, the most significant (yet most commonly overlooked) threat to your retirement.
• • •
Article provided by Michael Armon, Jr., Financial Advisor, with Stifel, Nicolaus & Company, Incorporated, member SIPC and New York Stock Exchange, who can be contacted in the Coeur d’Alene office at 208-765-7007.