FUability(c): Longevity Risk &
Fear of Outliving Money The Heart of The Matter
When all is said and done, risk to a personal financial objective is ‘not making the goal.’
The question typically usually overlooked by planners isn’t the naming of the objective/goal but what the goal/objective represents in terms of payoff (gain) or avoidance.
Yes, there is question of one’s longevity probability – which is based to genetics, life style, luck of the draw, etc.
But underneath, when scratched, the espoused euphemism of longevity risk, is the dreaded fear of outliving ones’ money (resources). The question is what is further underneath this fear of outliving one’s resources?
The seeking to avoid outliving one’s money is to continue to have FUability© (some dress this up as financial independence) but even more so: not being beholden, dependent, taking crap, having to kiss ass, and or be on Medicaid. Thus being beholden, dependent, taking crap, having to kiss ass, be on Medicaid – goes potentially fraying shattering the fabric one’s sense of self being decimated being a ward, sniveling, or worse being nice to one’s good for nothing relatives and with an obsequious smile as one is ‘put up with’ and ‘patted on the head.’
Transference of the Risk of Being Beholden
(to maintain FUability(c))
You can pay me now or pay me later (a hell of a lot more- jds)
Fram Oil Commercial
Now when insurance is distilled to its essence it is the transference of risk – at the cost of a small loss to minimize or prevent a large loss. Period – end of sentence. Insurance was never meant to be an ‘investment’ nor thought of that way. Yet as a result of the industry’s manipulation, the public thinks of insurance too often as an investment and therefore ‘their loss’ as an investment loss – rather than incurring a small loss (called premiums) to avoid a large loss accepting the small loss like their accept the cost of a motor oil change for maintenance of their car.
So, for example, one may have resources that at the 95% confidence level will fund ‘the longevity risk.’ But what if there is the need for a skilled or assisted care – which can run $95,000 a year? Longevity risk – so to speak – or the fear of outliving one’s resources – often does not take this into account – which goes to the heart of being beholden, dependent, taking crap etc and exhaustion of assets – regardless of otherwise longevity probability?
When in practice, I loved when a couple would say, if there is a need for home health care – assisted care – we’ll take care of each other. Now unless they could self insure the risk and their asset disposition according to their desires upon their passing were adequately funded, I’d ask the husband (or insignificant other) to lay on the ground, and have the wife (or insignificant other) now pick him up 7 times.
Talk about caregiver fatigue. (Note: there are two different roles to be performed by two different individuals: one who cares about you and one who cares for you ((even may have to wipe one’s tushie)). But that’s another issue.)
Given this fear of being beholden – taking or wiping tushie – also consideration should be given to the a reverse mortgage credit line as well as longevity annuities. (Note on these longevity annuities (you buy in your 60’s and they pay large let’s say at 85) – which are mediocre at best in my opinion – both one’s health, genetics, and strength of the insurer are critical to consider. And present ratings of insurers are no damn guarantees for the future See below)
The reverse annuity credit line – rather than reverse annuitizing –offers and increasing fall back – if necessary – buying time if used – from having to kiss meir tuchis and be beholden.
Techniques aside of trying to manage prevent/minimize not outliving one’s money, the reality of not outliving one’s money is about sense of self: independence (FUability(c) to be profane) versus beholden. And that is the crux of the issue.
What are the present tradeoffs (remember per Thomas Sowell ‘there are no solutions only tradeoffs’) one is willing to make to increase the probability of FUability (not being beholden) versus one’s present standard of living and other goals?
One thing to consider – the work free retirement (if your kids’ censoring smug confiscating colleges haven’t pirated your resources delaying or causing you to be a Greeter at Walmart™) is phasing the amount needed into two or three segments: the go go years, the slow go years, and the no go years. Typically, the highest amount needed is for the go go year trending downward thereafter – but still all the more reason for transferring risk (i.e. long term care, reverse mortgage credit line, and maybe even longevity annuities) just in case the go go years caused gone gone assets in the no go years – and one’s FUability(c) is compromised. Worse is especially having ‘to be nice’ to your good for nothing – ‘give me, buy me, take me – it’s coming to me’ kids’ who have forgotten all you paid for their worthless higher education at the expense of your retirement. Remember – what did you do for me today? isn’t a disease that is cured as it always latent.
Planners love to reinforce the scare of ‘outliving one’s money’ without getting to the heart of the matter – fear of being beholden. Since money is just a medium of exchange for goods and services, the question becomes strategizing not just with risk transference tools, THE distribution/withdrawal strategies of the week, but how to deal with the dread – that affects health & wellness – with family members. Given that 19% of seniors are now technically orphans (no family) how else to deal with these anxiety even terror concerns holistically.
Yes, as my dad would say, money doesn’t buy happiness but it doesn’t buy poverty either. But the fear of being beholden, real or imagined – and not unusually imagined even if not real, is an impoverishing that impoverishes the individual with or without family.
* Remember Mutual Benefit (AAA+ rating), Confederation Life, Home Life, New England Mutual etc – all top rated – down the tube – (actually merged out so no one would say down the tube). And what is within these highly rated insurers and their so called guaranteed products – bonds, real estate, etc. So the guarantee is only as good as the strength of the insurer which can change. Even so, strong insurers have been known to jettison risk – which BS explanations – ie. Met Life jettison’s many of its lines, and now the rumor per Wall Street Journal – Manufacturers Life (owner of John Hancock one of the largest long term care insurers) losing its ass on long term care policies is looking to spin off (get the hell off the risk) the Hancock policies to a new company. Thus, spread your risk in your Long Term Care policies and longevity annuities.