About 2 years ago my wife and I were on a cruise through the western Mediterranean aboard a Princess liner. At dinner we noticed an elderly lady sitting alone along the rail of the grand stairway in the main dining room.
I also noticed that all the staff, ships officers, waiters, busboys, etc., all seemed very familiar with this lady. I asked our waiter who the lady was, expecting to be told she owned the line, but he said he only knew that she had been on board for the last four cruises, back to back.
As we left the dining room one evening I caught her eye and stopped to say hello. We chatted and I said, “I understand you’ve been on this ship for the last four cruises.” She replied, “Yes, that’s true.” I stated, “I don’t understand” and she replied, without a pause, “It’s cheaper than a nursing home.”
So, there will be no nursing home in my future. When I get old and feeble, I am going to get on a Princess Cruise Ship. The average cost for a nursing home is $200 per day. I have checked on reservations at Princess and I can get a long term discount and senior discount price of $135 per day. That leaves $65 a day for:
1. Gratuities which will only be $10 per day.
2. I will have as many as 10 meals a day (of fantastic food, not institutional food) if I can waddle to the restaurant, or I can have room service (which means I can have breakfast in bed every day of the week).
3. Princess has as many as three swimming pools, a workout room, free washers and dryers, and shows every night.
4. They have free toothpaste and razors, and free soap and shampoo.
5. They will even treat you like a customer, not a patient. An extra $5 worth of tips will have the entire staff scrambling to help you.
6. I will get to meet new people every 7 or 14 days!
7. TV broken? Light bulb need changing? Need to have the mattress replaced? No problem! They will fix everything and apologize for your inconvenience.
8. Clean sheets and towels every day, and you don’t even have to ask for them.
9. If you fall in the nursing home and break a hip you are on Medicare; if you fall and break a hip on the Princess ship they will upgrade you to a suite for the rest of your life.
10. There is always a doctor on board.
Now hold on for the best! Do you want to see South America, the Panama Canal, Tahiti, Australia, New Zealand, Asia, or name where you want to go? Princess will have a ship ready to go. So don’t look for me in a nursing home, just call shore to ship.
PS: And don’t forget, when you die, they just dump you over the side at no charge.
You have heard of Market Risk, Inflation Risk, Interest Rate Risk and a few others but have you made plans for just living way too long?
The question of how much money is needed in retirement leads to another question which is perhaps the most difficult and the most central issue you as the advisor face when helping your clients prepare for retirement: How long should you expect clients to live? What is their longevity risk? Getting this variable exactly right is virtually impossible. Getting it wrong can have a profound impact on a client’s quality of life, lifestyle, and legacy.
Will you live to age 85? 90? 95? 105?
Longevity Risk Defined
So what is longevity risk? Longevity risk is the risk that people on average will live longer than expected. Due to improvements in medical technology, nutrition, disease control, public health, and environment, human life spans have improved very rapidly and very significantly. The National Center of Heath Statistics reports that between 1975 and 2016, life expectancy at birth increased from 72.6 to 78.8 years for the total U.S. population. For males, life expectancy increased from 68.8 years in 1975 to 76.3 years in 2016, and for females, life expectancy increased from 76.6 years in 1975 to 81.2 years in 2016. You can view the report at: https://www.cdc.gov/nchs/data/hus/hus16.pdf#015.
The problem is that many individuals underestimate their “average” life expectancy. In fact, according to a study conducted by the Society of Actuaries (SOA), titled Risks and Process of Retirement Survey, they reported that almost half of retirees and pre-retirees in the U.S. under estimate average life expectancy. The study asked respondents about their views respecting longevity risk. Here are some of the results:
- Approximately four in 10 respondents (43% of retirees and 38% of pre-retirees) underestimate average life expectancy by five years or more, the report Another two in 10 underestimate it by two to four years;
- Four in 10 retirees (42%) and pre-retirees (41%) correctly respond that about half of 65-year-old men and women can expect to live until median life expectancy (age 83 for men and age 86 for women). Two in 10 (21% of retirees and 20% of pre-retirees), believe that fewer than half will live at least until that age, while approximately one-third (31%), and 36%, respectively believe about 75% or more will live until then;
- Typical retirees and pre-retirees see themselves living until age 84 (median for retirees) or 85 (median for pre-retirees). The report notes, however, that one- quarter of retirees (24%) and almost three in 10 pre-retirees (28%, up from 15% in 2005) think they will live until age 90 or later; and
- At the other extreme, one in 10 retirees (9%) and pre-retirees (10%, down from 16% in 2005) do not think they will reach age 75.
Of course, averages alone don’t tell the entire story since once we reach our retirement years, the chances of surviving for another 20 to 30 years are substantial. In fact, as we survive each stage of life and the associated risks, the odds of us surviving to higher ages increase.
Figure 3.1 shows the life expectancies of 65-year-old Americans. According to the Social Security Administration mortality tables, a 65 year-old man has a 22% probability he will live to age 90, while a 65 year-old female will have a 34% probability she will live to age 90.
Probability of Today’s 65-Year-Old Living to Various Ages
|65 Year-Old Male||65-Year-Old Female||65 Year-Old Survivor|
Why not give our office a call and let us explain how to get ready for Longevity Risk. Call 215-886-2122 and we can show you how to plan for life.
When I was younger, there were advertising campaigns that advised people to check their blood pressure because it’s always a great barometer of one’s health. When I was a bit older, the campaign with blood pressure was so successful, they eventually started a campaign for people to find out their cholesterol level. What a shame that people do not check their investments in their 401k or other pension plans. It is a barometer of one’s Retirement Health.