Living Longer: 7 Financial Strategies for Longevity

“How old would you be if you didn’t know how old you are?”

–Satchel Paige, Baseball Hall of Fame pitcher

Life itself is the blessing that comes before all other blessings. Yet investors speak of “longevity risk” in the same way as market risk, interest rate risk, or the threat of a bad economy. It’s a risk to be managed, as if it’s a bad thing.

The typical financial strategies for longevity aren’t much fun. The fear of running out of money is real enough to inspire extreme frugality in some people. However, we think there are better strategies than just tightening your belt! To be financially prepared for the future, we need to think in terms of living a prosperous life—not simply “managing longevity risk.”

The seven strategies below all start with long-term thinking. The problem is that most people aren’t managing their finances for the long haul. They may do what makes sense in the context of a year, a decade, or even up until age 80. Yet MANY people reading this are going to live to 100… or beyond.

What Are Your Chances of Living to 100?

Using Social Security data, a MarketWatch article, shows that if you are 65 today, you’re got a 3 percent chance of living to 100 as a man and a 5.9% chance as a woman. As a couple, at least one of you has an 8.7 percent chance of living to 100. More importantly, one of you is likely to reach age 90. An article in the New York Times confirms that this research still holds true, and the population of centenarians is steadily increasing.

If you are age 45, those numbers increase significantly, with one member of a couple having a 12.1 percent chance of reaching 100. Additionally, one member of a couple is likely to reach age 91.6.

And those are just the “averages” using conservative data from Social Security. With new developments in health and medicine—particularly stem cell research and new diagnostic technology—I believe 80 will become the new 60, 100 will be the new 80, and 120 will be the new 100! (In fact, more on that later…)

With that in mind, let’s look at how to be prepared to live long AND prosper!

7 Strategies for Longevity

Longevity Strategy #1: Keep Doing Work You Love

The biggest mistake we see people making is retiring too early. Very few people have the financial ability to live for 30 or 40 YEARS on the money they have saved, yet everyone still wants to retire as early as possible. What happens then is all too predictable: people tighten their belts and worry about running out of money. They also tend to stop being productive.

Even if you have a bigger nest egg than you could ever spend… stay active and keep contributing! One of the definitions of retirement is “to take out of service.” Who wants to be taken out of service? Not me! As humans, we are made to be useful and productive. Even if you work part-time, freelance, or volunteer… stay productive.

The problem is our cultural expectation that we should retire at 65. Yet “65” is just an arbitrary number based on the Social Security system which aimed to force retirement during the Depression so that young families could have jobs. When Social Security began in 1935, the average life expectancy was only 61, according to Stanford Research from Javier Escamilla. People did not need decades of savings like they do now! Remember when we said 80 is going to be the new 60? We’ve done the math, and based on these retirement standards, 87 should actually be our new 65!

Don’t love what you do? It’s not too late to change it! Instead of “retiring,” figure out what else you would rather be doing… and get paid for it! Three resources you may find helpful:

• Udacity.com is an online learning platform that allows people to earn “nano-degrees” in up-and-coming fields.
• Tammi Brannan of the BlueprintProcess.com (also my sister) is a gifted coach who helps people identify their purpose and integrate it into work they love.
• My book, Busting the Retirement Lies, includes many short “case studies” of people who have created retirement alternatives.

Longevity strategy #2: Anticipate Inflation

One reason people retire too early and/or end up pinching pennies is that they don’t fully understand the impact inflation will have. Some people reach a point where their Social Security and investments and/or pension cover their monthly nut, and they figure they are good to go! However, there’s more to the story when you add in how inflation erodes the value of your dollars.

To keep the math simple, let’s say you/your family lives on $100,000/year and you wish to maintain the same standard of living in the future. You are now age 50 and plan to retire at age 65. Let’s assume an inflation rate of 3% and let’s just consider your income needs (after inflation) at ages 80, 90, and 100.

• 15 years from now, when you plan on retiring, that $100k/year lifestyle will cost you $155,797 in future dollars.
• At age 80, you’ll need $242,726 to maintain the lifestyle you have now.
• 40 years from now, at age 90, you’ll need $326,204.
• At age 100, 50 years from now, your $100k lifestyle will cost a whopping $438,391… for one year.

(Of course, we’re making no allowances for additional medical or long-term care costs—and medical costs are inflating at a much higher rate than the general Consumer Price Index).

Don’t stop working too soon… and don’t get blindsided by inflation! You’ll need more future dollars than you think.

Longevity Strategy #3: Save More Now

Another way to prepare for rising future costs is to save more. Many people aim for saving 10%, yet we prefer to see clients socking away 15 or 20%.

We also see people skipping over saving and jumping straight to investing. If you don’t have liquidity for emergencies and opportunities, you haven’t saved enough! Saving also helps you build up lump sums of cash to invest with. The best investments (real estate, life settlements, bridge loans, energy investments) require lump sums.

Don’t think you can save more? Track your spending for a couple of months. Chances are, there is money disappearing to places that may not be aligned with your values. For instance, it is common to see people spend more on coffee and/or alcoholic beverages than saving for the future. Once you know where money is going (or even before), try using a system like the Currence app. It’ll revolutionize the way you save money… WITHOUT a budget.

Longevity Strategy #4: Expand Your Assets

Too often, people put cash towards paying off “good debt” when it would be better spent expanding their asset base!

A prime example of this is prepaying a mortgage. Mortgage debt is considered “good debt” because it helps you acquire an asset that is worth more than the debt. However, too many people put EXTRA money towards their mortgage rather than using that money to acquire more assets!

Rather than put extra dollars towards home equity—which you cannot control and which does not produce value for you—use those extra dollars to expand your asset base. By saving the money outside of your home equity, you’ll be able to use it to purchase another investment.

The only time it makes a LOT of sense to pay off (or pay down) a mortgage is when you are older and wish to have greater cash flow. Then you can use a reverse mortgage to turn your home equity into an income stream! This is much more efficient than simply having a paid-off home. A free-and-clear home that produces no cash flow is a lazy asset!

Longevity Strategy #5: Focus on Controlling Your Money

If you remember anything, remember C.L.U.E.:

• Control
• Liquidity
• Use
• Equity

Unfortunately, typical financial advice steers us to give up control! We are taught to invest with risk, focus on net worth rather than cash flow, and put our money into retirement accounts where it will be subject to endless fees and future income taxes at an unknown rate.

Ways to invest for cash flow include:

• Real estate investing (always check the numbers and invest for cash flow—not appreciation!)
• Bridge loans (private lending on real estate assets, generally for a pre-determined rate of return)
• Mineral rights leases for energy development (an excellent vehicle for true passive income)
• Single Premium Immediate Annuities (ideal for older seniors who want a guaranteed income stream)
• Peer lending such as Lending Club (good for those who don’t yet have lump sums to invest with).

Another important way to gain control is to buy a home rather than be a lifelong renter. While it doesn’t always make sense to purchase (especially when a person is just getting established, likely to move, or is in an over-inflated market), we shudder when we hear of renters retiring. Housing is a basic need, so don’t leave it at the mercy of rising market rates and the whims of a landlord! And as mentioned above, you can eventually turn your home into an income stream, if you wish.

The bottom line: If you are maxing out your 401(k) but all of your “savings” is actually in mutual funds within retirement accounts, you are not in control of your money.

Longevity Strategy #6: Invest In Your Health

Your health is one of the best investments you can make. After all, we don’t just want to live long—we want to also be active, capable, and vital! Conversely, ill health can dramatically multiply your expenses in your later years.

As reported in a Fool.com article, “the average 45-year-old couple today will spend $635,142 in today’s dollars on healthcare costs in retirement, according to data from HealthView Services. That’s $1,730,774 in future dollars, in case you want to keep track.”

This AARP health cost calculator shows average costs for someone of your age, gender, size, and health. It can also reveal how much you might save by improving an aspect of your health, such as weight or blood pressure. We also like the calculator and tips at LivingTo100.com.

You might think of your sports equipment, yoga classes, organic food, supplements, and health-focused technology as “expenses.” Yet in truth, those are valuable investments in yourself that can pay dividends of many kinds!

Longevity Strategy #7: Make Your Life Insurance Multi-Task

As you may know, high cash value whole life insurance can help your dollars “multi-task” as both protection and savings. With whole life, you cannot outlive your death benefit. Plus the cash value element alone tends to dramatically outperform savings accounts and other cash equivalents over time.

What you may NOT know is that you can purchase dividend-paying whole life with a long-term care benefits rider. This special rider allows you to utilize your own death benefit for long-term care expenses. (Of course, just as with long-term care insurance, you must qualify for the policy and there can be limitations or waiting periods.)

Additional riders such as those for terminal or chronic illnesses further help a life insurance policy serve as an all-purpose protection vehicle. Properly constructed policies can shield you and your family from unexpected costs while providing financial certainty in both the best and worst of circumstances. It’s also much more efficient to have one asset that can do it all, than multiple products with less “power.” After all, you’ll pay a lot more for a lot less if you have to buy separate products.

Best of all—while typical insurance is a cost you never get back… it is impossible to lose money with whole-life insurance (provided you keep your policy in force). Your cash value is guaranteed to grow and never lose value, while the death benefit provides additional protection. Anytime you can get your dollars to multi-task and do multiple jobs, you increase the efficiency of your money—and your prosperity!

Prepare for a Long and Healthy Life Now, Not Later

Whether you want to save more or get a quote on a whole life policy with long-term care benefits and a terminal illness rider, we are here to help! Book with us or send us an email at welcome@prosperitythinkers.com to get started with us. We look forward to working with you.

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