Broken Pie Chart by Derek Moore

Author:Derek Moore
Language: eng
Format: epub
ISBN: 9781787439580
Publisher: Emerald Publishing Limited
Published: 2018-01-30T05:00:00+00:00

Figure 42. Life Expectancy United States by Year of Birth 1960–2015.

Source: Federal Reserve Bank of St. Louis and World Bank.

If nothing else, you should see the upward slope of the line indicating that people fortunately are living longer. The thing this does though is indicate that post-retirement individuals will need their pre-retirement assets to generate post-retirement income for longer periods of time. It also lends to the idea that investments will need to grow more than before. Using a traditional allocation, moving too much to bonds too early may pose additional longevity risk. Large un-hedged equity positions do pose extra risk. So it will be important to use alternatives. But longevity risk (outliving your assets) can be an issue. The difficult part is what age to input in your online planning tool in which to evaluate whether assets are sufficient based upon assumptions. For illustration purposes, we will use 85 as the life expectancy date. The longer one lives the more the assets have to last and the more positive inputs the investor will need both pre-and post-retirement. Those wanting to leave assets to heirs should have an extension to their years.

So, as we work through the inputs, let’s assume we have a 50-year-old with the following numbers and assumptions as shown in Table 16.

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