By Henry K. Hebeler

11-23-03

There are several web sites that help you to estimate your life-expectancy. I like the perspective of www.livingto100.com. It’s interesting and vital to see how changing your life style may influence your life span. The site has a calculator that is based on findings by the Boston University Medical School. But increased life span has financial implications too.

Life-expectancy is the age where 50% of the people who are your age and in your condition will live longer and 50% will not live as long. There are many things that influence these statistics. Generally women have longer life-expectancies than men and some races outlive others. But your personal life style may have the largest influence of all. Life-expectancies are increasing with health conscious life styles and better medical care. You should never develop a financial plan based on living only to your current life-expectancy.

I retired years ago. Many of my friends have outlived the life-expectancy they estimated when they retired. Now they know they spent too much money early in retirement and must readjust their life styles. Readjustments include downsizing of homes, moving to less expensive areas or communities, giving up certain hobbies and sports, selecting less care of eyes, ears, teeth, and other uninsured medical items and prescriptions. Many find that better health insurance is no longer affordable and have to abandon long-term-care policies. My wife and I help widows whose adjustments have been so severe that they now resort to choices between spending money for food or prescription drugs but not both.

As you get older, your life-expectancy increases. The exceptions that prove the rule are those who suddenly discover they have an incurable disease with quick death almost a certainty. However, even in these cases, people can never outlive their life-expectancy. Life-expectancy may be reduced to months instead of years, but as long as you are breathing, there is a good chance you’ll be able to take still another breath.

There are two things about life-expectancy that often cross elderly people’s minds: (1) Quality of life in old age, and (2) adequate income late in life. In general, both quality of life and adequate income require sacrifices many years earlier. To have a high quality of life, people have to sacrifice favorite foods and the time to needed to exercise. To have adequate income, people have to sacrifice spending in order to save.

Virtually everyone needs to do some planning in order to enjoy old age. We all have to plan to devote the time to keep our bodies in shape. We all have to make an estimate of our future financial needs and what it will take to get there. Plans are a kind of balancing act. You have to balance the pre-retirement sacrifices with retirement benefits. Whether physical or monetary, you can get some help from a combination of your own research and personalized advice from professionals.

Plans are not permanent. Conditions and attitudes change. Your assumptions turn out wrong. Your goals mature and get more realistic. Still, without an image of the current costs versus future benefits, it’s highly unlikely that you’ll ever get where you’d like. Most certainly, your future will be far different than your image without a plan and its corresponding actions.

During a war, an army needs a battle plan even though the plan will change as the enemy takes unanticipated actions. Without a plan, the battle can only be uncoordinated defensive actions which will certainly lead to defeat. Similarly, your plans will change as your own circumstances evolve, and the lack of a plan will leave you without the capability to do anything but react defensively and poorly. You’ll lack adequate resources to protect yourself much less the capabilities to do the kind of things that fit your current image of retirement activities.

The majority of working people have not planned for their old age. Don’t take comfort in this just because there are many others in the same condition. Even if you have a plan, the lack of planning on the part of others will add to your future problems. National savings are a disgrace. They are far short of historical averages when they should actually be higher. That’s because industry in general is abandoning traditional pension plans and forcing employees to rely on their own savings for the future.

Many people are counting on social security and government sponsored health care in retirement, but there is ever increasing evidence that both social security and medical assistance must be further reduced. Keep in mind that social security was never intended to fully support people in retirement. The goal was to provide about 40% of retirement income, and at the time, few people actually lived to age 65. Now people are living lots longer and finding their social security checks severely reduced due to deductions for Part B of the Medicare program.

Then there is the subject of debt. Politicians talk only of the current or future deficits. The deficit is only the amount that the annual government distributions aren’t matched by annual government income. The big problem is that caused by decades of cumulative deficits, that is, the total value of the debt. Interest has to be paid on this debt by the tax payers. Interest rates are at extremely low levels right now, but they are almost certain to get higher. When they do, the government will have to pay out more interest and will be severely stressed. The same thing will happen to all other kinds of debts. We’re at record levels for personal debt, corporate debt, state debts, and international trade deficits, not just the debt of the federal government.

The aging population will require more support from the working population because it’s the workers that pay the majority of taxes. As time goes on the ratio of working population to non working population is decreasing. This ratio can only increase if large numbers of people either retire at very old ages or never retire at all. Immigration of young, low tax bracket labor exacerbates the problem as does greater reliance on imported products from low cost labor countries.

If taxes don’t increase to pay debts, the other major alternative is inflation. Inflation makes the value of debt seem less important. People who have been making mortgage payments for a large number of years understand this well. The increase in their wages and costs of other items have increased so much that what was originally thought to be a large burden is now quite light. However, inflation is disaster for retirees. Typical mom & pop forecasts of how inflation will affect their future fall far short of reality because inflation compounds just as investments compound. You need a financial calculator or computer to truly estimate the growth of costs from inflation.

If you are counting on your friendly government for support of your income and medical related expenses, you are likely to be in for a very unfortunate future. There can be a much better life ahead if you start your planning now and make some conscientious sacrifices to improve those many years in retirement. After all, retirement is likely to be the longest period of unemployment you ever will see.

The first step is to estimate how long you may live in retirement. Take a look at www.livingto100.com. Consider changes to your life style that will both increase your potential life span as well as the quality of your retirement life. Then estimate how much income you’ll need and what it will take to deliver that. Start researching both the physical and financial things that will help those years and seek some professional help for matters that are beyond your understanding. Commit to a health improvement program and develop a personalized financial plan. You will never regret it!

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