This past week, I viewed a webinar presentation by Tom Hegna . Mr Hegna is an economist, a “retirement expert” and author of Pay Cheques and Play Cheques and other retirement books.
During his presentation, Mr. Hegna highlighted 10 different risks unique to “retiremenThis past week, I viewed a webinar presentation by Tom Hegna . Mr Hegna is an economist, a “retirement expert” and author of Pay Cheques and Play Chequesand other retirement books.
During his presentation, Mr. Hegna highlighted 10 different risks unique to “retirement.” They included:
- Longevity Risk – the risk of outliving your money
- Deflation – the risk that goods and services might decline (like during the Depression)
- Market Risk – the chance of a sustained bear market
- Withdraw Rate Risk – the risk of drawing down too much from your nest egg
- Sequence of Returns – risk of a permanent capital loss by drawing funds in a down market
- Regulatory Risk – a change or failure in regulatory framework (governance, Madoff)
- Taxation Risk – a hike in current rates or the imposition of new unforeseen taxes
- Inflation – an across the board increase in the cost of needed goods and services
- Long Term Care – the risk that a senior will require years of costly palliative care
- Mortality – the risk of a premature death
Of all the risks he highlighted, “longevity risk” was the most critical. It’s what he called the “Retirement Risk Multiplier.” IF that risk was not addressed first, the other risks could easily become more acute.
Life expectancy is a bit of a moving target and a tough concept for most. Most people see that life expectancy is around 84 for males and around 87 for females. What people miss is that notion that these numbers represent “averages.” They shouldn’t necessarily be used for planning purposes.
There’s a 50/50 chance (i.e. 1 in 2) that one member of a 65 year old couple will live to age 92 and a 25% (i.e. 1 in 4) that one member will live to age 97.
Hegna also noted, of all the risks retirees are exposed to, longevity risk is the easiest to take “off the table.” He advises retirees to calculate their basic human needs (food, clothing, shelter, utilities, etc.), see how much is covered by CCP and OAS and to top up income with an annuity – which guarantees retirees will never run out of income nor ever take a cut in pay (recent rates can be viewed here: https://think-income.com/annuity-info/ ).
Finally, Hegna noted how most brokers and financial planners run “Monte Carlo” analysis as a means of measuring and managing “risk.” Yet, their proposals always have a disclaimer on the bottom of the page their retirement illustrations that reads, “63% of plans fail to provide income at or after age 90.”