Thursday, September 13, 2018

No One Likes A Trick Question





Trick questions are difficult to answer.  Some are next to impossible.  Often, it’s seniors who ponder over the trickiest question of all. 

“How long will I live … because if I knew I would give money to the grandchildren now when they need it most?”

A generous heart can be problematic.  In some cases, a generous heart trumps common sense.  People can easily fool themselves into believing they have enough money to meet their financial needs for a lifetime.  How do we measure a “lifetime”?  The reality is a magic formula doesn’t exist. We all know family and friends who are now centenarians, living beyond 100 years of age. And we also know of family and friends who died earlier than anticipated.

So the question stands. 

“How long will I live because if I knew I could do a better job of financial planning and preparing for the future?” 

Certain guidelines can settle a person’s anxious thoughts.  They may not be perfect but they’re helpful.

1.  The Probability of Survival.
CERTIFIED FINANCIAL PLANNER® professionals will often reference the Projection Assumption Guidelines published by Financial Planning Standard Council (FPSC). Within this document is the life expectancy table shown below.  This guide leans toward longer life expectancies to provide a more conservative approach in developing projections.  

 
2.  Health Condition.
We are generally the best ones to know and understand our health circumstances and lifestyle behaviours.  The general assessment is based on our diet and fitness habits. How well do we take care of our bodies and minds?   This information can provide an accurate guideline to determine our longevity. When we have regular appointments with our doctors and health practitioners, these professionals are in a position to provide an accurate valuation of our current health status.      

3. Parents’ Longevity.
Often our parents’ longevity can provide some insight into our own.  If both parents lived to 90 years of age, then the probability is likely the same for us.  Naturally, if they died prematurely, we may have reason to believe their work conditions and health care were not ideal.  

4. Other factors.
FPSC interestingly identifies other factors which contribute to our life expectancy.  These all matter: 
·       gender
·       smoker or non-smoker status
·       place of residence (example: province, country)
·       evidence of good health
·       wealth
·       being retired

A Logical Response
The heart of the matter is we need an answer to the trick question to determine how much to save to satisfy our need for an ideal retirement. Secondly, we need to decide how much money to keep for ourselves while we give the remainder away.

Choosing an age from the chart that is higher than you believe to be true is far better than choosing a younger age. You would not want to live destitute because you have given away a sizable portion of your estate. 

My rule of thumb is we can be generous with a little of our wealth if we are absolutely certain we have an abundance.  But consider this:   Our financial situation can rapidly change within minutes.  Presently, we may be able to accurately calculate our annual lifestyle expenses.  But one sudden and severe health incident can dramatically increase these costs.      

Without a doubt, we have generous hearts. Common sense should rule. We need to be extremely cautious when we are seniors living on a fixed income in retirement. Seniors do not have an opportunity to earn employment income because we may no longer be physically able to work.  

The logical response: “Do not place ourselves in financial jeopardy.” When we pass away, the amount remaining in our estates may be passed on to our beneficiaries through our wills. 






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