“I’m going to die young”, is the ultimate retirement excuse

If you’re anything like me there is at least one person you are acquainted with who believes they will die young. Whether it’s because they had a parent die young or they just have some gut feeling about it, they are thoroughly convinced their time on Earth is more limited than most. I’m not here to argue the feeling, I’m more concerned with their retirement savings. I was speaking at a corporation recently and a seemingly healthy 30-year-old told me he had always believed he would die young so he still hadn’t started a 401(k). What? This whole thought process is absolutely baffling to me which is why I took to my Indy Star column to work through it.

“I don’t pretend to know anything about my own personal longevity, or anyone else’s, for that matter. But I do know that most people maintain an “I’ll die when I die” attitude. In retirement planning, this attitude allows experts to account for thirty and forty year retirements. Conveniently, everyone wins in this scenario. Financial planners can help craft rock-solid strategies, and clients can enjoy the fruits of thoughtful, thorough planning.” (courtesy of the Indy Star) 

Planning for retirement and financial planning, in general, is complicated. There are so many factors to take into account there will always be some error, but the biggest error will always be not planning at all. You may feel you’ll die young but rarely is there evidence to support this feeling. So what happens when, happily, you outlive your own prediction? You can’t retire because you supported your own feeling by not planning for the future.

“I remember hearing early in my career that a person should technically end retirement, whenever that may be, with at least as much money as they started retirement with. It’s just math. If you don’t know when you’re going to die, then you can’t really bleed down your assets too aggressively, or you risk their complete liquidation. The faster the spend-down, the more pressure is placed on the remaining assets.  I can count on a 10,000-finger hand how many times I’ve heard someone express the desire to “die broke”, but it’s not really a great goal. I realize this goal is more about maximizing pleasure in retirement and encouraging heirs to make their own path, but dying broke is a dangerous bet. Dying broke is the worst bet on the planet if you happen to have a gut feeling which has you dying young.” (courtesy of the Indy Star)

I was recently in a situation where a man was asking my opinion about his pension distribution. His choices were a lump sum of $500,000 today or $51,000 annually for the rest of his life. Safely withdrawing from the lump sum would only yield him between $20,000-$25,000 a year so I recommended he take the $51,000. He fought me on it and I couldn’t understand why until he confessed he believed he wouldn’t live too much longer. His Dad died young so he believed it was his path as well. If I couldn’t convince him with cold, hard math, nothing would change his mind.

The weird part about this whole thing is if you do prove your theory right, you die young, which is nothing to brag about. The whole point of financial planning is to provide. It will either provide for you until you die at a very old age, provide for you if you have serious health issues, or if you die young, it’ll provide for your survivors. You can believe whatever you want about your life expectancy, but don’t risk your survivors’ welfare while you’re at it.

Read my full column here.

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