What a 122 Year Old French Woman Can Teach Us About Retirement Planning
I keep a picture in my office of an elderly woman who has a lit cigarette and a drink in her hand. Her name is Jeanne Calment, and her story illustrates a point that I often find myself making when I talk to people about life expectancy.
I referred to it again just the other day when a friend shared with me that he’s not expecting to live much past 80.
“Why’s that?” I asked, knowing full well that he is healthy as a horse.
“Longevity isn’t in the cards for me; both my parents died in their 70s.”
Life may be short, but chances are it’s not as short as many people believe. Making a bet today on how long you’re likely to live can set you up for unintended financial consequences many years in the future.
Betting On the Future
Calment, a Frenchwoman, sold her apartment in 1965 on a contingency contract to Andre-François Raffray, a local lawyer. The agreement stated that Raffray would pay Calment 2,500 francs a month until she died, and then the apartment would become his outright.
No doubt, Raffray thought he was getting the better end of the deal. After all, he was 45 at the time he signed the contract; Madame Calment was 90 and a heavy smoker. Raffray wasn’t counting on Calment outliving him, but that’s exactly what happened.
Raffray died in 1996 at the age of 77, after paying Calment more than double the apartment’s market value. His family continued to honor the deal after Raffray’s death and was still paying Calment rent when she passed away at the age of 122.
What Life Expectancy Means
There is often a serious disconnect between how long people think they’ll live and how long they actually do. There’s a 50 percent chance that a 65-year-old man today will live beyond 88 and that a 65-year-old woman will live beyond age 90. If they are married, there is a 50 percent chance that one of them will live beyond age 94.1
So when my friend said he needs his money to last only until he’s 80, I told him that he’s essentially gambling on his future financial security: He’ll either have enough money for retirement (if he dies well before his life expectancy), or he’ll run out of money before he dies and have to rely on his children for support.
Looking Beyond Statistics
Of course, you can’t know how long you’ll live. However, life expectancy gives you a starting point from a financial planning perspective. It enables you to build a plan that takes into account that you may live longer than you anticipate. This way you can feel confident you won’t outlive your money.
As I told my friend, once you understand that you need to plan for a retirement that may last longer than you expect, there are a number of solutions that can help you manage the challenge of making sure your money lasts.
That’s where a financial professional can help. Even if you don’t have the genes of Jeanne Calment, he or she can help ensure you have a retirement income plan that will last as long as you do.
1 Annuity 2012 Mortality Table with mortality enhancements determined using projection scale G2.