What if you live to age 101?

Bill Parrott |

What if you live to 101?   Are you financially prepared to live to age 101?  It would be terrible to live to the ripe age of 101 only to run out of money at age 91.   This risk of outliving your money is called longevity risk and it is a real concern among today’s investors.   It is especially a concern for those individuals who sell their stock holdings due to short term fluctuations in the stock market.   It may seem prudent to sell your stocks when they are going down and wait for them to recover before you start to buy again.  However, when will you ever know when the stock market has bottomed and started to recover?    With the stock market off to a rough start to the year the urge to sell your stock holdings and move to cash may be high.   Is this a good move?   I believe it is a horrible move and one that can cost you dearly especially if you live to 101.

According to the 2010 U.S. Census there were 53,364 individuals aged 100.   In 1980 there were 32,194 centenarians.    A low estimate of 240,000 centenarians is expected by the year 2046.   Will you be part of this elite crowd?  If you are female, your chances of reaching this magical age is much higher than men.   The U.S. Census Bureau says 82.8% of the centenarians are women.

A 50-year-old person today with annual household expenses of $100,000 will see this number rise to $451,542 due to inflation at age 101!   If you sold your stocks today and moved your money into a savings account to wait for the stock market storm to pass you would have to wait a long time to double your money.  How long?  If you placed your cash in a Wells Fargo Platinum Savings Account earning .01%, it would take you 6,943 years to double your money!   6,943 years! 

Another risk to parking your money in a savings account is inflation risk.   With your money in a savings account you might not be losing money in the stock market but you are losing value to inflation.    $1,000,000 in a cash account today will be worth $221,463 (inflation adjusted) in 51 years.   Your purchasing power will drop by 78% by the year 2067. 

How can you keep pace with inflation?  You need to own stocks of all shapes and sizes – large, small and international.  You need to own stocks in good times and bad.  A portfolio of stocks will treat you well over the long haul whether they are currently going up, down or sideways.   

An investor who decided to buy the Vanguard S&P 500 Index Fund in March of 1999 during the “best” of times, would have averaged 4.2% on their investment through the end of January 2016.   This same investor who bought this fund in March of 2009 at the “worst” of times would have averaged 16.94%.

I would recommend ignoring the noise that will force you to sell your stocks at the wrong time.  Rather, you should focus on your own financial plan and your long term investments goals.    

Even now the one who reaps draws a wage and harvests a crop for eternal life, so that the sower and the reaper may be glad together.  John 4:36

Bill Parrott is the President and CEO of Parrott Wealth Management, LLC.  www.parrottwealth.com

Source:  Morningstar.  The inflation rate in this blog is set at 3%.