Are You in Danger of Becoming a Middle Class Bag Lady?

You see them everywhere. Maybe your aunt or even your mother is one. Women with middle and even upper bracket financial backgrounds are pinching pennies and depriving themselves in their golden years. Sometimes we find it comical, as when 78-year-old cousin Bessie brings a plastic bag to the buffet, and stuffs food into her Channel handbag. Other times we find it tragic, as when our best friend’s Mom passes away, never having taken that trip to Italy she always wanted.

Financial commentators have a name for the tendency of current seniors toward parsimony. They call it “the depression mentality,” and write it off to the tough money times our parents and grand parents shared, seventy years ago, when they were teens. But don’t be fooled. Our seniors are not just reacting to the past. Many of them are simply running out of money as they enter their seventies, eighties and nineties.

The great jazz pianist Eubie Blake said it about health, “If I knew I would live this long, I would have taken better care of myself.” We can all say the same about our finances. Longevity, our increased life expectancy is a big reason. Of all humans that survived past the age of 65 throughout recorded history two thirds are alive today! That is because we are the healthiest and wealthiest of societies. But we are not yet financially prepared to live three decades past retirement. The good news is we are going to live longer. And the bad news is that we can’t afford it.

Longevity and the danger of outliving your money.

When exactly does the fulcrum shift so that women with nice homes, good money habits and steady jobs find that they can’t make ends meet, and are forced to choose between a gift for their grand children and an outing to a Broadway show. The choices are private and the wear and tear is subtle. No food stamps, or public assistance, no shelters or Medicaid. The reality for the middle class bag lady is fewer meals out, reliance on senior discounts, reverse mortgages to be able to keep the house, and the dangerous skipping of medication to keep prescription drugs costs down.

For some, the penny pinching begins very close after retirement; others don’t feel the change until their early eighties. Researchers, like those at the International Longevity Center in New York City, are just now beginning to calculate the right time to buy an annuity to prevent financial burn out in advanced years. And the field of financial gerontology is just now emerging from the broader background of general financial planning.

As far as I can tell from observation, interview and experience with my older clients the road to middle class bag lady status is traversed in three steps.

#1. First, we are the caretakers, and that costs money and benefits. Throughout our lives we earn less and give up more because of the longevity of others. We are still paid less for doing the same work as men. And we start working later and end sooner to care for children and then spouses or older parents.

#2. Second, we live longer. Just now we are realizing that living well into our 80’s can be anticipated. The fastest growing demography in our country is those over the age 100. There are 75,000 centenarians alive today, slated to grow to 3 million in 30 years. And while costs for our kids, our clothes and our home may go down as we age, other costs are subject to run away inflation. While most of the products in the CPI—consumer price index went down in cost, prescription drugs skyrocketed by 6.3% inflation for the last 5 years, some tripling in cost. The average 70 years old takes 7 medications.
And it’s not just bad health that costs money, good health costs even more. We are traveling well into our 90’s! But the assistance and comfort we need to make those trips worthwhile is expensive. The cost of walking shoes, lightweight suitcases, and taxis to the airport mount up. The number one wish of many post retirees is the money to travel. Now that we are blessed with the health and the time, will we be able to afford the dream?

#3. Third, the cost of chronic or long-term care needs is almost incalculable. Aside from the loss of time at work to care for spouses, parents, and sometimes children, our own chronic conditions begin to kick in our late 70’s, making financial planning dependent on
much more than good spending and investing habits. We are all aware of the cost of unskilled help to get us to the grocery store, the movies, or simply to help with household chores. More than anything, we want to prepare for financial independence, to impose no burden on those we love. So, in the midst of life we save for that rainy day.
Many boomers are frustrated by their parents’ refusal to spend on enjoyable things and experiences. But they don’t realize the determined quest to remain independent in the face of a possible stroke, fall, or chronic condition is the motivator. Many seniors deal with the risk of chronic care by self-deprivation when they are well.

Can it happen to you?

It certainly can if you deny the possibility of your own long life, and refuse to handle the risk. In fact, today’s seniors had some advantages over baby boomers and those younger. One of them was the baby boom generation, itself. There were fourteen workers paying into the system of Social Security for every retiree. Today there are less than three to one, in a decade there will be a negative (less than one worker supporting the program for every worker receiving benefits.) We see this in action as the age of entitlement to Social Security keeps rising, so that the program can keep going. But far and away the greatest financial benefit shared by seniors, and gone from the future of almost all boomers and Gen Xers is the pension. Anyone with a 401(k) or 403(b) or IRA as their sole retirement nest egg, has only their personal investing know how between themselves and their long future. And with terrible recent stock market we have good reason to fear bag lady status.

Take appropriate action now.

Today’s seniors are the pioneers of longevity. They really had no fair warning that they would live so long. In 1900 the average life expectancy was only 47. When Social Security was enacted the average 65-year-old retiree lived only three more years after retirement, not thirty. Fortunately, today’s boomers and those younger have the time to prepare for a grand longevity, and make it a joyous and relevant life stage. It is never too early or too late for that special brand of financial planning—the longevity outlook. And as you might expect the financial industry is marching along, creating and adding to existing products to make out money line as long as our life line.

Here are just a few:

#1. The long term care policy. Much has been written about these insurance polices that pay up to $350 day if you are in need of a care givers help in bathing, toileting, transferring (walking), eating, continence, or have a dementia or Alzheimer’s decease. Coverage usually includes the cost of assisted living and continuing care facilities, to keep you pt of a nursing home. And younger buyers (the average age of buyers is 43 when offered a plan at work) needs are being met with spousal and “significant other” discounts.

2. Annuities that create an income stream that last as long as you live and beyond have been taken off the shelf and given new life. In exchange for a lump sum or a rollover from an IRA, other pension plan, variable annuity, or cash value of an insurance policy you can contract with an annuity /insurance company to transfer the risk of your long life. You can choose to “annuitize” the money so that each month you get a check that is partly a tax-free return of your principle and partly taxable income. Even if you live well past the value of the lump sum, you receive your check. You can opt to have the income extend through the life of your spouse, or for at least ten years, so that an heir receives money even if you die within the ten-year term.
Actuary and researcher, Anthony Web of the International Longevity Center in New York City concludes that annuitization at the age of 64 to 74 may be the optimum time for many, especially those that have no pension. What used to be an old age product, that few people lived long enough to need, is now beginning to be a staple of financial longevity.

#3. Charitable annuities. Much like the insurance contract variety, an annuity issued by a charity assures life long income. The difference is that appreciated property is usually transferred to the charity—stocks bonds or real estate-- to get income tax deductions. The extra relationship created through charitable giving also creates a feeling of relevance and contribution especially stimulating at a time in life when our society still marginalizes us because of age.

#4. The reverse mortgage. When surveyed, a majority of still opts to age in place, stay at home within the walls that have brought us comfort. Often it is the cost of upkeep, coupled with mortgage payments, that forces us out, not ill health. The reverse mortgage is actually another type of annuity. The lender supplies you with a lump sum or a periodic check, instead of you paying the freight. The result is that the home is less valuable or may provide no inheritance for your heirs, but you have its use for as long as you wish to live there.

#5 The second to die policy. You will notice that a main objection to any annuity or reverse mortgage is that your heirs suffer. The legacies that many of us want to leave or anticipate receiving are evaporating in a puff of longevity smoke. Those who want to leave a legacy and still have money to spend for their personal satisfaction and independence may consider the most cost effective of all life insurance policies—“the second to die.” The policy pays off at the demise of both spouses (insured’s may also be partners, and in some states, same sex couples and siblings.)
Those ready to consider longevity planning for himself or herself or a parent should contact a longevity specialist or financial gerontologist. Resources are available at, www.longevityclubonline.com, www.GenerationBold.com, www.CriticalPathSuccess.com.