In this episode, podcast host and author of “Control Your Retirement Destiny” covers Chapter 1 of the 2nd edition of the book titled, “Why It’s Different Over 50.”

If you want to learn even more than what there is time to cover in the podcast series, you can find the book “Control Your Retirement Destiny” on Amazon.

Or, if you are looking for a customized plan for your retirement, visit us at sensiblemoney.com to see how we can help.

Chapter 1 – Podcast Script

Hi, I’m Dana Anspach, the founder and CEO of Sensible Money, a fee-only financial planning firm that specializes in helping people transition into retirement. I’m also the author of the books Control Your Retirement Destiny, and Social Security Sense.

My passion for helping people make the best retirement decisions possible is what led me to write Control Your Retirement Destiny and I’m honored by the incredible 5-star reviews it has received. I wrote it because I wanted people to see what a real retirement plan looks like – and the book spells it all out, step by step.

Today, I’m thrilled to bring to you this podcast where we will discuss highlights from the book. In this episode, I’ll be covering Chapter 1 of the 2nd edition of the book titled, “Why It’s Different Over 50.”

If you want to learn even more than what we have time to cover in this podcast series, I encourage you go to Amazon.com and search for Control Your Retirement Destiny. Or, if you are looking for a customized plan for your retirement, visit us at sensiblemoney.com to see how we can help.

Let’s get started.

----

So, why is it different over 50? Sure, your joints ache more, and you can no longer read menus, but, do the financial aspects of life change too?

In many ways, yes, they do.

Think of it like this…

Imagine you’re planning for a road trip. This road trip has two phases.

The first phase is the accumulation phase. This occurs during your working years where your focus is on saving for retirement. You have a set point in time you are saving for – a destination you want to reach by a specific age.

The second phase is the decumulation phase of the road trip. This will be the point in time where you will “live off your acorns”. You have a lot more flexibility in this phase, but also, a lot more unknowns.

Let’s look at each phase more closely.

First, the accumulation road trip.

Assume for this portion of the road trip, you’re not going too far, only about 300 miles.

Your gas tank holds 18 gallons and you didn’t have an electric car, so you only get about 20 miles per gallon.

Taking 18 gallons x 20 miles per gallon, you can estimate you’ll get about 360 miles per tank. Since your destination is 300 miles away, it’s pretty easy to figure out you can get to there on one tank.

This type of calculation is simple and easy to do. When you’re young and actively saving for retirement, this type of calculating helps you figure out how much to save.

For example, if you’re age 40, and you want to save $1.5 million by age 65, how much do you need to put away each year?

The answer is about $24,000 a year – that is assuming you earn about 7% a year on your investments.

This type of math is relatively easy to do using a spreadsheet or a financial calculator. It’s easy because you plug in specific data, such as 25 years and a 7% return.

Now, let’s start the second part of your road trip – the decumulation phase – and see how the math gets harder.

As you start the decumulation phase, here are some of the questions you have.

How long is your road trip going to be?

What terrain will you be driving over?

What will the weather be like?

Are they any gas stations along the way?

What will the price of gas be?

These are all unknowns.

Let’s break these unknowns into four risk categories.

1. The first category is called “Longevity Risk”. You don’t know how long you’ll live. So you don’t know how many total miles you’ll be driving. Instead of knowing it is 25 years until you reach age 65, now your road trip could be 20 years, thirty or even 40 years.

1. The next risk category is called “sequence risk”. This has to do with the unknown market returns. For example, we all know that city driving takes more fuel than highway driving. But with this road trip, you don’t know what conditions you’ll encounter. This risk impacts you when you are accumulating too. But while you are younger you have time to recoup from mistakes, or from a period of time with below average investment returns. As you get closer to retirement, a bad sequence of returns, or several years in a row with poor returns, can cause a result that you didn’t see coming.

1. This next risk category is “inflation risk”. What will the price of gas be as you travel along? Will prices rise over time, and if so, by how much?

1. The last challenge you have is rationing your supplies. This is a risk retirees face called “overspending risk.” Suppose you pack your favorite snacks, but you go on a binge early on the trip and gobble them all up? Now, you don’t have enough for the tail end of your trip.

To feel comfortable transitioning into retirement, you need a plan in place to account for these unknowns.

In this podcast on Chapter 1 of Control Your Retirement Destiny, I’m going to provide an introduction to each of these four risks; longevity risk, sequence risk, inflation risk, and spending risk.

1. LONGEVITY RISK

First, longevity risk. When you run a projection, you must start with an assumption about how long you might live. You can guess, or you can use science… sort of. Science works well for engineering when you’re working with known factors – like gravity.

But as we discussed, this road trip has a lot of unknowns, so when it comes to this type of planning, it’s really a scientific guess. Or, the term I love, that one of our clients shared with us, … a SWAG… or Scientific Wild A** Guess. (Can I say that on a podcast?    I sure hope so!)

To SWAG longevity risk – the unknown factor of how long your road trip is, it is best to start with mortality tables –– These are the types of tables that insurance companies use and that the government uses when figuring out how much in Social Security they will pay out over time.

We’ll start with data from 2014 mortality tables. If you’re curious, you can find these tables and associated research on the Society of Actuaries website.

First, let’s look at singles.

SINGLES

For a single female, age 60, –how likely do you think it is she’ll live to 85? Would you be surprised to know there is a 60% chance? - (64% white collar only)

Male – age 60 – A male age 60 has a 51% likelihood of living to 85 - (58% to white collar)

Those are high odds. Many people make decisions about money with an off-hand comment such as “well, I might not live that long”. That’s like betting against the odds!

Not only do people routinely underestimate how long they’ll live, many married couples make decisions based on their own life expectancy, as if they were single. What they need to do is look at their joint lifespan.

If you’re married, how likely is it one of you will live to 85? The odds go up to 80%! 85% when looking at just the white collar data set.

What about the likelihood that one of you will live to 90? There’s a 58% chance – which goes up to 65% for white collar folks.

----

I’d play to those odds in Vegas any day. Wouldn’t you?

So doesn’t it make sense that you should align your finances to take advantage of those odds?

What do you think the 85-year-old… you will wish the 50-year-old you had done?

What about the 90-year you? What do you think they’ll wish the 60- year old had thought about?

The types of decisions I’m talking about aren’t just “save more and spend less.” There are more complex decisions to make – decisions that help reduce the risk of outliving your money.

For example, one decision that can have a big impact on protecting you against the risk of outliving your money is the decision as to when you start Social Security. Your Social Security benefits are inflation adjusted and you get a lot more per month if you start benefits at a later, age rather than as soon as possible.

And if you’re married, you must learn how Social Security survivor benefits work. Many couples have one person who made the majority of the income. All too often that person starts Social Security benefits at a young age, and thus severely curtails the survivor benefits available to their spouse.

There are many financial tools to consider when looking at how to protect your retirement income for life.

You have to be open minded and willing to learn how things really work. This isn’t always easy.

The bias against some financial tools can be so strong that when I mention them, you’d think I’d said a four-letter word! What are tools the illicit such strong responses? Things like Reverse mortgages and annuities.

These products can be great financial tools when used in the right situation. It’s sad that many of these tools are marketed in such a cheesy way that people refuse to consider them.

----

In conclusion, when it comes to longevity risk, the unknown length of your road trip, be open minded and evaluate financial decisions such as

• When you begin Social Security


• Use of a reverse m