Avoid Outliving Your Retirement Funds

Could under estimating your longevity mean you will use up all your retirement funds before you are used up?

At age sixty five, the typical life span is eighty one years for a male and eighty four yrs for a woman. At age seventy five, the median life expectancy is 85.5 yrs for a man and 87.6 years for a female (these are medians which mean half of the people live LONGER) . With latest improvements in health care science, it is not a stretch to think that you could live to be 100. If you thunk this is unrealistic, consider that 10 years ago, most all cash value life insurance policies "matured" at age 100--they paid out the death benefit to the insured. Now, most life insurance policies do not mature at age 100 because the insurance industry understands the actuarial facts.

Actually, the U.S. Census Bureau projects that by 2050, there will be nearly one million centenarians.

Nobody desires to die sooner, so that is great news. The problem: If your retirement plan does not recognize the chance of an extended retirement, you then can possibly outlive your retirement funds.

Think about the following theoretical example. Presume you are sixty-four years old and earn $60,000 per year. You plan to retire next year at age sixty five. You have accumulated $1,000,000 in retirement funds, which you think will return a hypothetical 6 percent each year throughout your retirement. Y0u need $60,000 annually, adjusted for inflation so you will need to use some of your principal. If you have a 15-year retirement from ages sixty five to 80, you will don't have any shortfall in retirement funds; in fact, you will end up with almost $696,000 to pass on to your heirs. On the other hand, if you have a 30-year retirement from ages sixty-five to ninety five, you'll run out of money at age eighty eight! The table beneath shows details. Of course, this instance above is theoretical and for illustrative purposes only. It isn't designed to represent the performance of any specific investment or portfolio.

Will you use up all your retirement funds?

Age	Savings	Retirement savings required for annual living expense (rises annually for inflation)
64	$1,000,000.00	$0.00
64	$1,059,999.94	$0.00
66	$1,058,028.28	$61,860.00
67	$1,053,905.60	$63,777.66
68	$1,047,439.82	$65,754.77
69	$1,038,425.39	$67,793.17
70	$1,026,642.42	$69,894.76
71	$1,011,855.72	$72,061.50
72	$993,813.88	$74,295.41
73	$972,248.18	$76,598.57
74	$946,871.51	$78,973.12
75	$917,377.18	$81,421.29
76	$883,437.69	$83,945.35
77	$844,703.39	$86,547.66
78	$800,801.08	$89,230.64
79	$751,332.50	$91,996.79
80	$695,872.80	$94,848.69
81	$633,968.79	$97,789.00
82	$565,137.20	$100,820.46
83	$488,862.75	$103,945.90
84	$404,596.18	$107,168.22
85	$311,752.06	$110,490.44
86	$209,706.59	$113,915.65
87	$97,795.12	$117,447.03

Source: Burling Bank. Assumes $1,000,000 in retirement funds has already been accumulated; an additional $60,000 is added. The cash increases at a theoretical 6 percent per year; $60,000 (in today's dollars) in withdrawn every year. This instance above is hypothetical and for illustrative purposes only. It is not intended to represent efficiency of any specific item.