The idea of humans living to age 100 used to be the realm of fairy tales and science fiction. While it’s still not a common reality, advancements in healthcare are making it increasingly possible. But the fairy tales never considered the financial toll of living that long — after all, rent is due, and your landlord won’t take dragon’s gold
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Understanding that their need for stable income won’t change — even if the candles on their birthday cake hit triple digits — many people are turning to what’s known as the 100-year life plan.
Though a 100-year life plan focuses on improving all areas of aging, including health and interpersonal relationships, financial well-being plays a central role. Creating a longevity portfolio that provides financial resilience and flexibility is essential. For some financial experts, this longevity portfolio is incomplete without sources of guaranteed income.
GOBankingRates doesn’t have the recipe for an elixir to help you live to 100, but we do have access to a financial expert who can explain why you should consider guaranteed income as part of your 100-year life plan.
Longevity risk is exactly what it sounds like — the concern that you could outlive your savings in retirement. Chad D. Cummings, Esq., CPA, CEO of Cummings & Cummings Law, sees this concern growing among the clients he serves in Florida and Texas. He regularly advises clients who are still drawing from retirement accounts well into their 90s.
“Longevity risk is now a statistical certainty for many clients in Florida and Texas, not a planning outlier,” he said. “Most financial planners are way behind the curve on this: A 65-year-old today has a one-in-three chance of living past 90 and a one-in-seven chance of surpassing 95.”
Cummings shared that without sources of guaranteed income, portfolios face significant longevity drag, or the gradual depletion of assets as withdrawals continue over a longer lifespan.
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As Cummings sees it, older adults are vulnerable to certain factors outside their control, such as bad market timing or declining cognitive abilities.
Certain kinds of annuities — such as single-premium immediate annuities (SPIAs) and deferred income annuities (DIAs) — can provide steady income either right away or later in life. They help insulate you from negative factors by delivering guaranteed monthly income that isn’t dependent on market performance.
“These vehicles convert assets into irrevocable income streams insulated from market volatility,” Cummings said. “This is particularly critical as elder financial abuse accelerates, especially in Texas, where POA fraud is rampant. Clients over 70 with no trusted family members should consider annuitization to reduce discretion-based vulnerabilities.”
In other words, setting up one of these reliable income streams can protect seniors from having their money misused by someone they should be able to trust.
You’re probably well aware of the financial wisdom of spreading your investments across different asset types — but Cummings also wants you to consider the tax treatment of your income.
If you lean too heavily on traditional (or pre-tax) IRAs, you may experience sudden jumps in income later in life that could lead to higher Medicare premiums and taxes on your Social Security benefits. Cummings’ solution? Mix things up — but include guaranteed income in that mix.
“We often recommend a laddered blend of single-premium immediate annuity income, rental income, qualified dividends, and tax-free muni bond interest to smooth adjusted gross income and reduce IRS audit flags,” he said.
Essentially, this approach keeps your income more consistent and helps you avoid unnecessary tax complications or spikes that could draw extra attention from the IRS.
For Cummings, fixed income that doesn’t rise with inflation isn’t enough to help seniors keep up with increasing costs of living.
“A $3,000 fixed monthly payout loses over 50% of its purchasing power in 25 years at 3% inflation,” he said.
People who expect to live past 85 — a demographic that’s expanding rapidly — need income that adjusts with inflation, such as annuities with cost-of-living adjustments or investments in Treasury Inflation-Protected Securities (TIPS).
Living to age 100 or beyond sounds exciting — but it comes with challenges, especially when it comes to financial security. Integrating guaranteed sources of income into your 100-year life plan can help protect you from market volatility and from individuals who may take advantage of your trust.
You’ll want a strategy that avoids unexpected tax bills while ensuring your income keeps up with inflation.
Even if you never make it to 100, adopting a financial approach that can support your independence for decades is always a wise move.
This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.
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This article originally appeared on GOBankingRates.com: Why Guaranteed Income Should Be Part of Your 100-Year Life Plan
