If GOP nominee John McCain is elected president this November, his mother Roberta McCain would turn 100 during the final year of his first term. Fortunately for Mrs. McCain, who was the wife of an admiral and heiress to an oil fortune, she's financially secure as she makes this push towards her centennial. But not everyone aging gracefully into their late golden years has those financial cushions to rely on.
For those who reach the retirement age of 65, consider how times have changed from 1935 when Social Security was enacted. In 1935, the life expectancy for a 65 year old was 12.5 years, according to the National Center for Health Care Statistics. Today it's 18 years. These extra years, while welcome and celebrated, can cause a financial burden on the non-Roberta McCain's of the world. "One of the problems we see is that people are literally outliving their money," says Charles Failla, a certified financial planner at Sovereign Financial Group.
Here’s how to make your money last as long as you do. Whether retirement is three weeks away or thirty years away, the first step is to recognize your money might have to last into your nineties and beyond, and to plan accordingly. For a lot of people, this step comes too late. "When clients come to me 28 years away, that's retirement planning," says Failla. "When they come a few years away, it's crisis management."
The equation for a solid retirement is simple. Evaluate your goals and your resources, and then add up income, projected income and current savings. If this current calculation doesn't project enough money for you to retire comfortably at 65, then says Failla, you have three options.
Save More, Spend Less
Whether it's cutting back on daily expenses or making drastic lifestyle shifts, the important thing is watching the bottom line of your savings grow. Saving a couple bucks by cutting back on daily expenses like lattes or lunches out might seem like a minor change, but projected over a long time period, these add up. Those closer to retirement age might need to make larger shifts like moving to a smaller home or cutting back on lavish vacations. But don't think of it as losing out on a trip to Paris. Think of it as gaining six months of grocery bills in ten years.
When Prussian ruler Otto von Bismarck invented the Social Security system in 1889, the eligibility age was 65. When President Franklin Roosevelt signed Social Security into law in the United States, this age didn't change. And today, despite all the advances in medicine and healthcare, we still say the retirement age is 65. But we're a long way from Prussia. "A lot of people are working well into their 70s," says Failla. He points out that some enjoy working, but a lot are forced to stay in the workplace because they didn't plan for retirement. According to statistics from the Social Security Administration, about 40% of an average earner's income can be replaced by Social Security during retirement. That means if you can't cover the other 60% with investments and other sources of income, it might not be time to quit the work force.
A third option is to shelve that grand idea of retiring to a villa in Tuscany. If you can't fix the finances on the front end, then you have to shift your goals on the back end. "The way I explain it to clients," says Failla, "is that I'd love to have a ten acre waterfront property in Greenwich, Connecticut. But I don't because I can't afford it."
Whichever option you choose, the most important thing is to not ignore the problem. "People do the ostrich thing," says Failla. "They put their head in the sand and forget about it." If you don't want to see a financial planner, Failla suggests at least using an online calculator to find out your projected retirement income figures. "Really, you need to take the necessary steps. There's no magic button that financial planners have to fix everything. I wish there was."