A few years ago, I took my mother, who was then in her early 80s, to a local senior center. We arrived early in time for socializing but there werent many people present. Then, around 11:30 a.m., the room started to fill up and soon every seat was taken.
Over 100 seniors had crowded into that room and I wondered if a famous celebrity was scheduled to speak, or it was possibly a special celebration. No, the main attraction was being able to get lunch for a dollar.
The room was filled with former teachers and workers of a wide variety of occupations and professions. What they all had in common was that now they were living on a fixed income. Was that going to be me someday? I wondered, shuddering at the thought.
Like many Boomers, I share that worrisome question thats on so many of our minds: Will I outlive my money? Younger Boomers, in their late 40s and 50s, at least have the luxury of time to make back some of the losses to their 401Ks or to build up more retirement funds reduced or eliminated by the pullback in the stock market.
But what can us older Boomers do? Many have pretty much given up on being able to retire, at least in the foreseeable future. And no one wants to be a burden to their children or anyone else for that matter. Everyone wants to ideally live in a financially independent way. So its time for Boomers of all ages to ask ourselves: how much money will I need to continue to pay my bills, take an occasional vacation, and not have to turn to anyone else for help as I enter the final decades of my life?
According to the National Vital Statistics Reports of the U.S. Department of Health and Human Services, United States Life Tables 2004, in 1900, the median age at death in the United States was just 58. As noted in that same report, by 2004, life expectancy had become, on average for the total population, 77.8. However it is not that uncommon today to find men and women living into their late 80s, 90s, and even over 100, some 30 to 40 years after being eligible for Social Security, a number that is predicted to soar for the Boomer population as it ages.
Darrin Courtney, a Boston area certified financial planner, agrees that the issues for the Boomers in their late 40s and 50s are different from those in their 60s. Courtney recommends that younger Boomers educate themselves about how long life expectancy is today and start to think about how they're going to pay for those extra years.
Take your time and dont rush into things, Courtney says. Work with someone you trust to do the research and to find the best mix of investment products and solutions. Carefully make a diversified decision about how to best meet your goals, knowing it might not be possible to meet all of them.
Worse than death
How widespread a concern is it to wonder if you will outlive your money? According to Jeff Faust, Senior specialist for external communications for Allianz Life, a provider of life insurance and annuities, a study conducted in May 2010 with more than 3,200 men and women between the ages of 44 and 75, found that 61% percent of those surveyed noted that they feared outliving their income more than they feared death. (Allianz is not without its critics. See Consumer Complaints about Allianz).
The study also found that 31% were unclear about what their expenses would be in retirement and 36% had no idea if their income would last.
Obviously with 78 million Boomers, and so many different situations, there is no one answer. But in researching the topic, I realized that there is the reality of poverty those who truly are poor and are trying to live on just their Social Security in retirement and are in need of government or private aid to get by.
Then there are those that I call the PP psychological poor. This is the group that has a fixed income that is much higher than the poverty level, possibly even over $100,000 a year from pension income as well as earnings from dividends and investments. However, those in the PP group may see themselves as outliving their money because they are earning less in retirement than they earned when they were working.
Be clear on your expenses
A few years back, Catherine Kitcho, a business consultant, started to worry about whether or not she and her husband would outlive their money. She did a lot of research into the topic and in 2007 her book Happy About Being a Baby Boomer: Facing Our Newfound Longevity was published.
Catherines approach was not to do an income projection analysis of the retirement years but to focus on a projection of what expenses you will need to cover. That way you can see your estimated expenses compared to your projected and, if there is a shortfall, at least you would have a specific number that you know you have to make up.
Besides future expenses, you also need to know what your current assets are (as well as your debts). Moreover, you need to take into consideration some of the costs related to aging that you are probably not dealing with yet. If you have an aging parent, you may be watching them spending money on these expenses and wondering how you will handle these costs when the time comes for you as well:
• Long term care costs if you or a loved one become sick and you need part-time, full-time, or even live-in assistance
• Once you hit Medicare and you get Medicare to cover health care, since it does not cover all of the health care costs, the cost of the supplemental insurance to pick up any costs that are not covered.
• Lifestyle costs: if you wish to travel or, if you wish to downsize your home, the cost of moving.
• The cost of living in an assisted living residential center or a nursing home.
• Legal services for preparing wills, trusts, health care directives, and any other specialized documents related to your estate.
7 Ways to Avoid Outliving Your Money
Solution #1: Keep Working
As long as you keep working and postpone taking Social Security for as long as possible so that you get a bigger payout, you should have more funds to work with in those years when you can no longer work.
You need not continue in the same job you are in now. You could switch to another job (See "Boomers Looking for Work" or even another career, or start your own business.
But the key is to keep one or more income streams coming in so you are not trying to live only off your pension, if you have one, or off your savings or investment dividends.
Solution #2: Make What You Have Last Longer By Becoming More Frugal
Judy Woodward Bates, who coined the term Bargainomics, has a weekly show on how to save money on Fox-6 TV in Birmingham, Alabama and is the author of Bargainomics: Money Management by the Book. She credits her grandmother who showed her by example how to be frugal and also her own parents who, when Judy decided to get married at the age of 17, announced to her that if she was going to do that, she and her husband would also have to make it on their own financially, and they did.
Judy is 57 and married to a 60-year-old who retired at the age of 53 and has worked sporadically ever since. She prides herself on the fact that they have never had a large income and never needed one because weve learned to live and live well within our income. Judy is dedicated to spreading the word that it is possible to happily live within your means. Here are some of her tips:
She doesnt eat out unless its a two for one deal or its an early bird special. Shes a big advocate of getting discount coupons to help offset the cost of eating out through www.restaurant.com or www.currentcodes.com. (Shell often go to www.currentcodes.com first, get a code, and then go to www.restaurant.com so she will pay just $3 for a $25 off certificate that would have cost her $10 without the code.)
She uses a local entertainment.com book and if shes going to any major city for even a couple of days, she will get one of those books because it helps her save a lot of money. She especially likes the certificates for movie ticket admissions through www.entertainment.com since you can get multiple movie tickets for $6 that would have cost $10.
There are links and additional suggestions at Judys website -- www.bargainomics.com.
Solution #3: Pay Off Your Debt and Avoid Incurring New Debt
Youve heard it before: Getting out of the credit card debt conundrum as you head into your potential retirement years is more important than ever before. Make it one of your top financial priorities. See Digging Out of Debt. Be careful not to make the problem worse by falling into the arms of a debt settlement company. Nearly all of these are scams.
Solution #4: Downsize or Relocate
Instead of waiting around for the housing market to come back, consider selling your home, if you can, and moving into a smaller one. You could save on the cost of the upkeep of your home including lower property taxes and heating and electric bills. You might want to rent instead of buying with any profits you do get from the sale.
As I discuss at greater length in Boomers Ponder Where to Spend the Rest of Their Lives, where you live can be one of the biggest cost issues that Boomers need to address. In addition to moving to a smaller home, you can also consider relocating to a less expensive community within your state or another state, or even to another country where your dollars will go further.
Solution #5: Stay Healthy
Avoiding expensive health care costs, related to having a chronic disease that necessitates custodial or nursing care, is one of the best ways to preserve your funds while you age. (Even if you think a family member is going to provide unpaid custodial care, he or she may have to give up working part-time or full-time to take care of that family member so it is not really free care.)
If there are any conditions that may impact your health that you can proactively prevent by changing your behavior, such as by giving up smoking, losing excess weight that makes you prone to diabetes or heart conditions, eating a healthier diet so you keep your cholesterol lower, or increasing physical exercise, which will also help reduce your risk of heart disease, do it. (See How to Live Better and Longer.)
Solution #6 Consult with an Elder Care Attorney or Financial Advisor about Asset Protection
Certified financial planner Darrin Courtney points out that most financial planners will offer a free consultation to help you to decide if working with an expert is the right step for you. An elder care attorney might also be able to advise you on an asset protection plan that makes the most sense for you and your family.No two situations are the same so, if possible, seek out help and work with someone who has the expertise and credentials to guide you and your spouse into making the best financial decisions in your older years so you avoid outliving your money.
Courtney also notes that most local chapters of the Financial Planners Association (FPA) may offer pro bono assistance you if you cannot afford to pay for the services of a financial planner. (For more information, see Pro Bono at the FPA website.)
Solution #7 Consider Long Term Care Insurance
It may be hard to think about it now, but if you or your spouse requires long term care, it can quickly deplete your savings especially if you are not eligible for Medicaid. Eligibility for Medicaid is a whole other discussion because of the financial eligibility requirements, that vary from state to state, as well as the five-year look-back period into the assets of the Medicaid applicant, and a set of requirements about what type of care is covered.
In a nutshell, if financial tests are met, nursing home care is usually covered by Medicaid; assisted living is not.
An option to consider is long term care insurance. Every policy is different based on what is offered and the monthly premium will vary according to the age that you get the policy, your overall health, and what you put into the policy. Still, there are some general rules of thumb from Michael A. Masiello, a financial planner who runs a firm, Masiello & Associates, out of Rochester, New York.
As Masiello says, You start burning through assets at $10,000 a month to cover the cost of care and it makes the cost of the premium look relatively inexpensive. What might those premiums be? For a 50 year old in good health, the premium would probably be $4,000 to $8,000 a year; for a 60-year-old, in good health, $6,000 to $10,000 a year. The cost goes up quite a bit as you age with a healthy 75-year-old having to pay $8,000 to $15,000 a year. Is that a lot of money a year? It certainly sounds like it. But if you consider that by paying those annual premiums you may get as much as $200,000 to $300,000 coverage when you need it for long term care, it is a different story.
Like annuities, long-term care insurance is fraught with peril. It's essential to research the topic thoroughly and be sure to choose a financially-sound underwriter. The Kaiser Family Foundation has published a study that is a must-read. Check consumer sites to see first-person consumer accounts of their experiences.
The Bigger Picture
D. Drummond Osborn is a 48-year-old fee-only financial advisor who has been working with Boomers for the past 20 years. He has experience with clients whose assets range from $100,000 to many millions. But, as Osborn notes, The zeros in front of the decimal may differ, but the fear of running out of money is often the same.
Notes Osborn, While a healthy relationship with money needs to be a balance of intellect and emotion, I have found that most individuals address the issue from one perspective or the other. The intellect has them eyeing an imaginary number that the retirement planning industry tells them will make them happy, while the emotional side either has the sky falling or a c'est la vie attitude. I require the Boomers I work with to create a balance - beginning the process of how they want to live and the legacy they wish to leave behind -- and THEN start talking about the numbers. While this approach doesn't negate the possibility of running out of money, it does empower the Boomer to address the reality of their financial life. There are almost always ways to avoid running out of money; unfortunately the majority of Boomers are unwilling to face the right/hard choices.
Planning and Being Prepared
As Darrin Courtney says, Its not a bad idea to plan for a thirty-year retirement. Put away as much as you can. Pay down debt. Seriously consider perhaps working a little longer and delaying getting Social Security rather than taking it at 62 because you want to get your hands on it.
So it all comes back to those P words: planning and being prepared. The more Boomers plan for, and are prepared for, retirement, whatever their age, the better the outcome when that day occurs and, hopefully, they wont run out of money.