Planning For Retirement?
Dear Friends & Neighbors,
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Few days after our post on Frugality May Lead To Earlier Financial Freedom, an article by Dr. Meir Statman of Glenn Klimek, professor of finance at Santa Clara University, titled “When Good Money Habits Turn Against You” was published in Wall Street Journal in April 24, 2017, issue. Dr. Statman stated in his article, “Too often, the same personality traits that facilitate saving for retirement become impediments when it is time to spend that money. …It can lead to much less satisfying retirement. ….It can greatly reduce the happiness of later life….” Dr. Statman also suggests dropping the rule against dipping into capital because he claims “You’ll die sooner than you think.” because according to data from the Social Security Administration, a man reaching age 65 is expected to live, on average, until 84.3. A woman turning age 65 can expect to live, on average, into 86.6. About one out of every four 65 year olds today will be able to live past 90, and one out of ten will live past the age 95.
My response to this:
- Dipping into the capital (instead of only living off of the interest) may be quite all right for those who would die sooner than they think, but for those who actually end up living much longer than they originally anticipate (such as into the age of over 90 or 95), what should they do if they happened to be the minority few with unexpected longevity, into 120 or even longer? With our advancing technology and medicine, there is a chance of dramatic increase in human longevity in decades to come. Then dipping into capital too early potentially would be disastrous for those with extreme longevity. I would recommend Vanguard’s “A More Dynamic Approach To Spending For Investors In Retirement“, with spending at a ceiling of 5% and floor of 2.5%, depending on the market performance.
- For those who have developed the habit of frugality prior to retirement, they are not as likely to be unhappy if they continued with their frugal ways in later life. It is those who have never developed habits of frugality prior to retirement and yet having to be forced into such habits later in life who would be unhappy.
- For those who are likely to live beyond 120, after they’ve reached 80’s or 90’s (as my mother, who has just celebrated her 85th birthday with us and still going strong),
- it may not be a bad idea to consider investing in Single Life Annuity (which I’ve convinced my mom to do after she’s reached 80) or various forms of Life Annuity.This would insure that the annuitant would always have income for as long as she/he will be alive.
The choice and decision is yours.
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