While there are many risks facing retirees; Market, Inflation, Tax, Excessive Withdrawl, Healthcare, the current number one is Longevity. Longevity risk means outliving your money.
Jon has covered this subject before and discusses strategies to ensure you will not outlive your retirement income in this updated episode.
Call Jon at (888) 426-0177 with questions, comments or to get a free copy of Top 10 IRA Mistakes and How to Avoid Tax Traps. Visit www.heischmanfs.com/ for additional information.
Episode Transcript
People really don't know what their expenses will because they
don't know how long that they're going to live.
Speaker 2 (00:06):
The Americans are worried they won't have enough safe for retirement.
Now more than ever, retirement's going to cost for many
folks over a million dollars.
Speaker 3 (00:14):
He is no short thing in investing, but a lot
of people think that annuities may come close to that.
Speaker 2 (00:19):
It's going to more safe, safe, safe, safe things that
they know.
Speaker 3 (00:22):
If they know they're going to need that money to
supplement the retirement, well then you can't play that resk.
This is the Safe Money and Retirement Show. But John
Heischman senior founder and partner of Heisman Financial Services serving
the Columbus and surrounding areas. John specializes in educating pre
retirees and retirees about safe money strategies and ideas. Now
(00:43):
it's the Safe Money and Retirement Show. Here's John Heischman, Senior.
Speaker 2 (00:48):
Retirement Risk. All retirees are going to face risk in retirement,
but many aren't aware of that and it's unfortunate because
you don't associate retirement with risk. This is John Heischman
bringing you the Safe Money and Retirement Show. I want
(01:09):
to talk about the number one risk in retirement as
far as I'm concerned, and the one I always address
as top priority. Before I get started, I want to
give you some information my phone number six one four
(01:31):
eight six one seven zero five five. I'll give it
to you again six one four eight six one seven
zero five five the website Heischmann FS dot com, h EI,
S C, h M A n F S dot com.
(01:57):
I always enjoy hearing from my listeners as far as questions, concerns,
feedback and any suggestions you have for me. As far
as the material or retirement planning thoughts that you would
(02:20):
like to hear on my show. Chances are your concern
and what you would like to hear. There's many others
out there that would like to hear the same, so
just let me know. Six one four eight six one
seven zero five to five. When I do retirement planning
(02:46):
for a client, I always address all the many risks
that they're going to face during retirement. At the top
of the list is it's going to be the longevity risk.
How could we be sure and address that you don't
(03:09):
outlive the money that you've worked hard for for years
to save and protect. You know, in this world today.
Without pensions, retirees are left with the responsibility of managing
the spend down of their assets over a retirement period,
(03:35):
which is uncertain in lengths. Yes, we can always look
at mortality tables, but those don't always hold true either way,
and most retirees will underestimate their lifespan. And here in
(03:59):
lie the longevity risk, or the risk that life expectancy
is going to exceed expectations, resulting in retirement income needs
that are greater than anticipated. So to put it more simply,
(04:19):
it is the risk of running out of money, resulting
in a lower standard of living, a reduced level of care,
or in many cases even the need for post retirement employment.
And that is assuming you can work physically and mentally
(04:45):
in retirement. One of the worst case things I can
think of is the need to have to go back
to work later in retirement and you're unable, you're not
capable of doing that. It's a problem. We have to
prevent that, and this longevity risk is coming to the
(05:11):
forefront as the population rapidly ages and life expectancies increase.
In fact, the risk of outliving one's assets is widely
considered to be the number one concern of retirees today,
(05:35):
and that's why it has to be addressed by all
advisors' retirement planners or anyone that's managing your money. Even
as recently as a generation ago, to find benefit plans
(05:56):
were the norm, and this is a pension plan. They
provided employees with a guaranteed lifetime income, so you really
didn't have to worry because a pension is a pension.
It's going to be there for as long as you
live throughout retirement. As longevity increased, pensions became increasingly expensive
(06:27):
for employers to maintain. That's why pensions are disappearing, and
they have been for some time now. So what's happened.
Pensions have become four oh one K plans, encouraging employees
(06:47):
to save on their own, and this became the responsibility
for the employees to make their own investment decisions and
saving enough for them to provide a lifetime amount of
money that they can outlive the number of years one
(07:10):
will need their money to last. Here is perhaps the
biggest unknown in retirement planning. It is also one of
the most understood inputs in retirement savings calculations, with potentially
the most severe consequences of a miscalculation. So let me
(07:39):
give you some facts. Do you know the average life
expectancy for a person who was aged sixty five years
old in twenty seventeen was seventeen point nine years for
a man and twenty point five years for a woman,
(08:00):
and this is increasing. Those averages are not a guarantee,
but merely the age by which half of the population
is expected to have died. Consider that for couples who
(08:20):
retire at sixty five, there is a fifty percent chance
that one spouse is going to live to age eighty nine.
And the thing is many don't anticipate having that type
of longevity. I encourage you to give your situation some
(08:46):
thought as to your savings, your retirement accounts. Is it
going to last twenty twenty five thirty years into retirement. Well,
many they just don't know because they haven't considered the
(09:07):
market risk to their accounts or their savings is not
growing equal to or greater than their retirement income rate
of withdrawal. If you have to withdraw five percent each
(09:30):
year of the money you have set aside for retirement,
are you going to consistently every year going to get
a five percent return or better to replace what's withdrawal.
Are you guaranteed that money at risk won't be susceptible
(09:56):
to what happened in two thousand and eight? Because we
just don't know what the future is going to bring,
and because most retirees today don't have that guaranteed pension,
they have to make sure the money in their iras
(10:19):
four to one case and other employer retirement accounts are
going to be enough to last the rest of their retirement.
The last show, I talked about budget planning, and many
are surprised once they complete their budget that they need
(10:41):
more than anticipated. Then going to the next step, the
money that you have, is it going to be there
and lasting throughout retirement? I just can't stress this enough.
When I come back from the break, I want to
(11:02):
talk about some things that are going to be problems
causing individuals to run out of money. Then I'm going
to give you a solution on how to prevent running
out of money, providing you with a guaranteed lifetime income
(11:24):
in the form of your own private pension plan. So
make sure you stay tuned for the second part of
the Safe Money and Retirement Show. I'll be right back.
Speaker 1 (11:40):
Thanks for listening to The Safe Money and Retirement Show
with John Heisman. For more information, call one eight eight
eight or two six zero one seventy seven. That's one
eight eight eight or two six zero one seven seven,
or visit their website at heischmanfs dot com more of
the Safe Money and return rehirement shoe in a moment.
Speaker 2 (12:06):
Sequence risk or sequence of returns risk is the risk
when market losses occur early in retirement in multiple years.
Most people have never heard of this term because few
people talk about it outside financial planning circles. Yet preparing
(12:29):
for sequence risk can make or break your nest egg
in retirement, depending on how much money is at risk.
Heischmann Financial Services wants you to be aware and educated
about this retirement risk and show you the options available
to prevent sequence of risk that could affect your future
(12:54):
retirement income. Call me at eight eight eight four to
two six zero one seven seven eight eight eight four
two six zero one seven seven.
Speaker 1 (13:17):
Welcome back to the Safe Money and Retirement Show with
John Heisman. To contact John, the number to call is
one eight eight eight or two six zero one seven seven.
That's one eight eight eight or two six zero one
seven seven once again, here's John Heisman.
Speaker 2 (13:34):
Welcome back to the second part of the Safe Money
and Retirement Show. I'm your host, John Heischmann. The first
part of the show, I was discussing the longevity risk
which I feel today retires that is the biggest risk
(13:56):
out of all the risk that retirees. I always bring
to the table with my clients. The risk in retirement
I've put together about thirteen and again the longevity risk
is right there at the top. Now we all can
(14:17):
agree that living longer does have its rewards, including allowing
retirees the opportunity to travel, to volunteer, get involved in
their communities, and to have time to do those things
that they weren't able to do during their working career.
(14:38):
But as I've been discussing, it comes with risk, namely
financial risk and the challenge of making savings last for
an extended period of time. If we all knew how
long we were going to live during retirement, it would
(15:00):
simplify things as far as the longevity risk, or if
we could go by the mortality tables that the actuaries
put together for us, and also in figuring life insurance rates,
that also would make it a lot simpler to determine
(15:24):
our lifespan. The Employee Benefit Research Institute found that roughly
forty four percent of households in the Baby Boomer and
Generation X generations, those born from nineteen forty eight to
(15:45):
nineteen seventy five, were likely to run short of cash
in their retirement years. The Federal Reserve reported in twenty
fourteen that the typical household with workers age fifty five
(16:05):
to sixty four has a combined one hundred and twenty
thousand dollars in their four to one case, and I
raise clearly not the widely recommended eight to twelve times
annual income needed to ensure a comfortable retirement. I believe
(16:29):
this situation has gotten better or the numbers have increased,
but due to inflation, taxes, health care cost that one
hundred and twenty thousand dollars may be up to one
hundred and fifty to one hundred and sixty thousand today.
(16:52):
I agree with those numbers that the Employee Benefit Research
Institute has put together because in retirement planning, I see
the numbers. I see the amounts that those getting ready
to retire have for retirement savings. Also, there has been
(17:15):
an increased emphasis on the need to save and the
many options that have emerged to help people accumulate retirement
savings and going into retirement. The guaranteed lifetime income benefits
(17:38):
that have become, in my opinion, one of the most
advanced option today for retirees. It's basically your own private
engine plan that I help clients structure to make sure
(17:58):
they don't run out of money because that income's going
to be there the rest of their life along with
Social Security. And if you're fortunate enough to have a
pension plan from your employer, please call me about that.
I think every retiree or those getting ready to retire,
(18:22):
they need to know about the guaranteed lifetime income benefit
private pension and will it work for them. My direct
line my office number is six one four eight six
one seven zero five to five or the number that's
(18:45):
available twenty four to seven to leave a message for
me to contact you or any material anything you need
from me is eight eight eight four to two six
zero row one seven seven triple eight four two six
(19:05):
zero one seventy seven. Now, I also think there's a
lot more information today and awareness about the longevity risk
which our parents really didn't have to worry about that
because they had a pension plan from their employer, and
(19:28):
as I've mentioned on previous shows earlier that those have
pretty much disappeared. There are pension plans out there, but
private companies are doing the way with them and switching
to the four to oh one K or four three B.
And that money meaning a four to oh one K
(19:49):
and four oh three B. We have to take that
money and generate that private pension with an amount that's
needed to generate that guaranteed income. The other problem I
see with those retiring is taking out too much money
(20:12):
too soon and too quickly, in addition, not taking social
Security income at the right time. That's why retirement income
is so important in working with clients to make sure
their income withdrawal rate is correct based on the amount
(20:37):
of money they have as well as social security planning.
For example, the recommended withdrawal rate could vary a little
depending on each individual, their age and the amount of
money they have. At a four percent withdrawal rate, and
(21:00):
any of you might be thinking why four percent, why
not six, eight or ten percent? And simple math will
tell us if you're withdrawing eight percent for retirement income
and the growth of your accounts. That's the money left
(21:22):
in those accounts that's going to pay out future income.
If that growth isn't at least eight percent or better,
you're going to see your retirement assets account balances decrease.
So you might be thinking, hey, John, I'm getting a ten, twelve, thirteen,
(21:44):
fourteen percent return on the growth of my money, and
you know what, so am I. But let's look back
at the average ready to return and usually that's on
your account statements. Now, let me touch on a couple
(22:06):
of other things. Risk that can affect your average ready
to return Inflation, investment return, sequence of returns, risk. These
will obviously affect the account value of your retirement accounts.
(22:34):
So if that four percent, and again everybody's different, maybe
it can be stretched up to five percent. Can work?
Statistics show you're going to be okay. Now the order
the retirey gets, the time line for needing retirement income
(22:59):
is now shortened. If the retirement accounts have grown, the
retiree will now be in a position to be able
to increase that withdrawal rate and they'll be safe throughout retirement.
But actually it's something that needs to be reviewed once
(23:22):
a year on the annual review. Are you taking out
too much or not enough? How has your growth been,
which you'll have a bearing on the withdrawal rate. I
want to briefly touch on the sequence of returns risk.
(23:43):
Most people are not aware of and it's not brought
to their attention now. Sequence of return risk involves the
order in which investment returns occur. Sequence of returns risk
can greatly impact the retiree's ability to attain short term
(24:09):
and long term goals, and this has been an area
of great concern. Later after the retiree realizes this has happened,
a period of market losses can significantly deplete income generating
(24:32):
potential of your portfolios. This can put a retiree in
a situation that I call catch up to make up
for losses, especially early in retirement. The bottom line is
we want to prevent that at all causes if possible,
(24:57):
and as I've mentioned before, one of the best ways
is to have your own private pension plan. My job
is to help you prevent all the potential problems that
I've been discussing. And if you have an interest in
(25:18):
reviewing your retirement accounts, your exposure or I could say
potential exposure please let me know and keep in mind
there is no obligation, there is no cost. We can
schedule a meeting or we can talk about your situation
(25:40):
over the phone eight eight eight four to two six
zero one seven seven triple eight four to two six
zero one seventy seven, or call me direct at my
office sixty one four eight six one seven zero five
(26:00):
to five. All right. Unfortunately I'm out of time, but
I appreciate the time that I do have and really
hope that I've given you some good information to think
about in planning your retirement. Again, thank you for listening.
This is John Heischmann.
Speaker 3 (26:21):
The Safe Money and Retirement Joe, John Heisman Senior. To
get in touch with John, call one AA eight four
two six zero one seven seven. That's one triple eight
four two six zero one seven seven. For more information
about Heisman Financial Services, visit their website Heisman FS dot com.
(26:42):
That's h E I, S, C, H M A n
f S dot com. Join us again next time for
the Safe Money and Retirement Joe with John Heisman Senior
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