Living Too Long Risk

When we are young dying too soon is the greater risk. Eventually, it turns around and living too long becomes an issue.

Thinking about the factors.

  1. How much does your lifestyle cost now
  2. How will it change between now and retirement
  3. How will it change after. Living standards, inflation, potential healthcare
  4. How much spontaneous income do you have at retirement? Pensions and government benefits
  5. How big is the shortfall or surplus?
  6. How long do you need the money?
  7. How much capital do you need to create for yourself?
  8. How much can investments earn?
  9. How will taxes harm investment income?

What you are trying to do

It’s simple. You will take a series of small monthly amounts and invest them until you have a large accumulation. Then you will take the large accumulation of investments and change them back into smallĀ  monthly amounts. Everything else is detail, guesses, assumptions, and how you adjust.

What you want to know is how much should I save this month.

You cannot do it intuitively because the formulae used are too complicated for mental arithmetic.

The answer you get for the big accumulation is an estimate. It completely depends on your assumptions and how they interact with each other.

Lifestyle spending is real. It is goods and services based. Cash flow to support it is quite a different thing. The part you must supply for yourself depends on:

  1. how much you save each month,
  2. how much you earn,
  3. how much taxes are,
  4. how much inflation is,
  5. how much you spend each month in retirement, and
  6. how long you live.

Getting a feel for the problem.

What you want is a way to put the problem in perspective. Worst case, best case and the middle of the range. Once you have a spreadsheet to work with, you can change variables and get a feel for what can happen.

When you have a sense of the problem, you can adapt productively. Adaptation is essential. Faced with a choice you can decide. Suppose at 50, you notice your planned cost of living is either 5% too high or your required monthly saving from now to age 65 is 7% too low. You can decide how to proceed.

There are choices:

  1. Invest for a higher return.
  2. Reduce taxes
  3. Reduce cost of living now slightly to save more
  4. Find a way to spend less in retirement.
  5. A combination of all

Do you need to worry about living too long?

Maybe, but not as much as you think.

People adjust when they must. But the effect of change over long periods is not as serious as you think. Here’s why:

  1. Inflating cost of living doesn’t last forever. Cost of living tends to fall as you grow older. Beyond about age 85 the cost of clothing, transportation, recreation, and travel diminish. You can expect inflating unit costs but deflating ability and desire to spend.
  2. The present value of the spending need far in the future is not huge. Suppose you’re 50 now and expect to live to 90. If you live to 91, how much would that affect what you should save today. One dollar invested today at 4% after taxes is worth $4.80 by the time you need it at age 91.
  3. You will adapt. That’s what you have always done and will continue.

Retirement income planning and building the capital to support it becomes organized common sense. The arithmetic is tricky though.

Starting sooner is a huge advantage.


I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email don@moneyfyi.com

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