You often hear the question, “When do you plan to retire?” Perhaps this was appropriate back in the days when you worked for the same company your entire career, received a generous pension and headed for the rocking chair after leaving employment. A better question today might be “What does retirement mean to you?”

Do you define retirement as a total cessation from productive work? Some certainly do, and view their retirement years as a time of endless leisure – a just and deserved reward for punching the clock and keeping their nose to the proverbial grindstone. However, as appealing as endless rounds of golf or non-stop travel might seem, the leisure life can be stressful for many.

People who define themselves by their work or job position often have a tough time adjusting to the reality of retirement. They abruptly move from someone of importance with a definite structure to their life to just another elder qualifying for cheap coffee at McDonalds. This can be a painful and cheerless transition.

On the other hand, this may not even be an issue for you, since your finances dictate that you must continue working and earning some income, even during your golden years. For those ushered out of the office building in their 50s by companies who earlier eliminated their pension plans and were eager to save money by shedding themselves of older and more costly employees, there is no option of retirement leisure. They will work – or at least seek employment – for years beyond the traditional retirement age.

But, if you could retire, would you? And, what does retirement really mean to you anyway?

Retirement, at least in the way it has been defined for the past couple of generations, is somewhat unnatural and eliminates the challenges that make life fulfilling. A staged-retirement, which recognizes the reality of aging while still providing opportunities not just for income, but also for stimulation and a sense of purpose sounds like a healthier and happier way to live to me.

We plan, save, invest and watch our expenditures in order to eventually be in a position where work is optional and not a requirement. Financially, this is a good place to be and a worthy goal to aspire to – but what a waste to arrive at that point in your life with no idea of how to live the rest of your life in a worthwhile fashion.

Of course, there are many who achieve that elusive financial independence and who continue to contribute to their community – and to their own happiness – through productive involvement in countless volunteer opportunities.

I find it interesting that the concept of retirement is nowhere to be found in the Bible. From the beginning, in the Book of Genesis, we are told that man was put into the Garden of Eden to “work it and take care of it.” Do you ever wonder what God meant by that?

Insurance Against Living Too Long
by Gerald Townsend, Financial Editor

Running out of money during retirement years is a major concern for many. While current savings, pensions and social security may be adequate for many future years, will a time arise when rising expenses or bad investment decisions ravage your savings and result in inadequate income?

Of course, intelligent investing combined with a reasonable and realistic retirement withdrawal strategy is the most common – and perhaps most sensible way – of dealing with this concern. But, this approach still leaves certain risks and decision-making on the shoulders of the retired individual, and for some this is too much of a monkey on their back.

One approach is to utilize immediate annuities, which provide regular income for your lifetime. But acquiring an immediate annuity at the time of retirement often requires you to permanently part with a significant amount of your capital in order to generate the needed income. In addition, if your main concern is not how to generate income from age 65 to 85, but how to avoid running out of money from 85 to 100, then an immediate annuity may not be a complete solution, as the rising cost of living may far exceed the annuity payments.

So, the ever-creative insurance industry has developed a new product to address the risk of living too long: Longevity Insurance.

With longevity insurance you make a one-time payment to an insurance company in exchange for a future income payment that starts many years later. For example, you might make a one-time investment at age 60 or 65 for annuity income that would not begin until age 85. Once it does start, it would not only continue for the rest of your life, but might also increase at a pre-determined percentage each year.

The attraction of longevity insurance is the certainty of knowing that in your later elderly years an income payment begins that will continue as long as you live.

If you are attracted to the concept of longevity insurance you should pay attention to the flexibility and options offered by the insurance company and what these choices cost you. Compare the longevity insurance proposal with the alternative of simply retaining your money and investing it in a moderate-risk portfolio for many years and then commencing withdrawals.

Another way to duplicate some of the appeal of longevity insurance would be to simply delay your receipt of social security benefits until age 70. Delaying your benefits beyond the full retirement age (66 for current retirees), results in an 8% annual increase in benefits from the full retirement age to age 70 and therefore permanently increases your later benefit.

Finally, remember that with immediate income annuities and with longevity insurance you win by living a long time. The insurance company is betting that you won’t.

Gerald A. Townsend, CPA/PFS, CFP^®, CFA^® is president of Townsend Asset Managment Corp., a registered investment advisory firm. Email: Gerald@AssetMgr.com

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