Financial advisers to investors: Think of retirement as ’35 years of unemployment’

Americans’ life expectancy continues to climb, new estimates out this month from the Society of Actuaries show.
Official assessments such as these can impact investors’ plans on many levels, including how large a required minimum distribution must be taken from retirement assets or how much investors will pay for long-term-care insurance.
While these realities are out of people’s control, investors can use the factors they can determine as a guide, such as how long they work and their routine spending habits, to ensure their savings don’t run out before they do.
But it can be tricky for investors to understand the urgency.
Financial advisers who counsel investors on retirement find seniors and soon-to-be seniors are slow to accept the need to plan for so many years going forward. But some advisers have found ways to hammer home the point.
‘UNEMPLOYED’
“I explain that we are not using the word ‘retirement,’ and instead to think about potentially being unemployed for 35 or more years,” said Michael Goodman, founder of Wealthstream Advisors.
Such a change in thinking can help investors come to a more realistic picture of retirement, namely having to cover expenses over decades without a job, he said.
Mr. Goodman develops financial plans for investors who assume they’ll live to 90 or 100, but some balk and maintain that they won’t live that long because their parents died young.
“I explain that we are living in such a different time than they did, where we are so much more conscious of our diet and exercise,” he said.
In fact, men and women will be living healthy lives of 110 and 120 years in the not-too-distant future. Some researchers of aging already speculate that children born in the most recent decade are likely to face life as supercentenarians — living to 110 or older.
The more conservative Social Security Administration data predicts those born Jan. 1, 2011, can expect to live to be 76.18 years if they are men and 80.95 if they are women, based on mortality data from 2011. A man who has lived to age 76 as of 2011 can expect to live an average of 10 more years. A woman who was 81 in 2011 can expect to live an average of 9 more years. That’s an average person; life tends to be longer for people who are wealthier.
LONGEVITY GAINS SLOWING
The SSA data for 2010 and 2011 was recently added to calculations the Society of Actuaries uses to predict how long pension plan participants will live. It concluded people are living longer, even though longevity may be increasing slightly more slowly than previously estimated, the group said Oct. 8.
Investors sometimes argue they will be spending less in later years of retirement, when they envision spending more time on the couch and less time traveling the world. But the reality is they spend just as much, if not more — just on different things, such as health care and prescriptions.
Advisers said investors are often surprised by how much they are spending in retirement, especially on medical care, and a more surprising expense: helping their children and grandchildren. Investors tell advisers they thought their children would be more financially independent by the time they retired.
“They are helping their children achieve a better lifestyle — helping with education, family vacations, orthodontists, things they expected a college-educated individual would be able to take care of themselves,” said Vincent Schiavi, president of Schiavi and Dattani Financial Advisors.
But investors are resistant to cutting back on financial help to adult children, and that’s an area where advisers can really make a difference, he said.
“We show that them if they go crazy with support for their children, they could find themselves needing their kids to support them at the end of their lives,” Mr. Schiavi said. “That tends to hit home.”