Should You Assume You’ll Live Until 100 for Your Nest Egg? - By Glenn Ruffenach

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Birthday cake made by one of my friends, for another of my friends!

I’m working with a financial adviser who suggests that, for planning purposes, my nest egg should last until I reach age 100. I understand the need for erring on the side of caution, but that figure seems somewhat excessive. Can you recommend a good tool for estimating one’s life expectancy?

Actually, that suggestion makes more sense than you might think. Between 1980 and 2010, the population age 90 and older nearly tripled, reaching 1.9 million people, according to the Census Bureau. Over the next four decades, the 90-plus demographic is expected to quadruple. (And just FYI: The U.S. had 53,364 centenarians in 2010.)
The point: Many people, when planning for retirement, tend to underestimate their life expectancy and, as a result, tend to overestimate how much they can spend after they leave the office.
All that said, there are several good tools that can help you judge how many more birthday parties to plan for. Two popular ones are livingto100.com and How Long Will I Live? (go to myabaris.com and click on Tools). Both incorporate variables like family history, personal health and socioeconomic status.
Also check out Blue Zones, a public-health organization, and its “Vitality Compass.” (Go to bluezones.com and click on Tools.) This particular calculator—in addition to estimating life expectancy—can help forecast “healthy-life expectancy,” or the age a person will reach before being diagnosed with heart disease, diabetes or cancer. The site also offers tips for living longer.
I am 74 years old and, each year, take my required minimum withdrawal from my 401(k) with Vanguard. My wife has a 403(b) plan with a different investment firm. She is 70 years old and needs to begin withdrawals this year. Her investment firm representative mentioned that since we file jointly on our tax return, my wife’s required withdrawal could be made from my 401(k). Is that correct?
Your wife needs a new investment rep.
There is no such thing as a “joint” 401(k) or a “joint” 403(b), says Ed Slott, a certified public accountant and individual-retirement-account specialist in Rockville Centre, N.Y. When the time comes, participants in retirement plans must make individual withdrawals from their individual accounts—even if a wife and husband file jointly and the combined income goes on the same tax return. So, you must continue to withdraw your required minimum from your 401(k), and your wife must withdraw her required minimum from her 403(b).
Indeed, if you follow the representative’s advice, you could create a nasty tax problem for yourselves, Mr. Slott says. To start, you would withdraw more than the required minimum from the 401(k) and end up paying more in taxes. Meanwhile, there would be no withdrawal from the 403(b).
Failing to take that required distribution would result in a 50% penalty on the shortfall. (If you are supposed to withdraw $10,000, the Internal Revenue Service will bill you $5,000.)
“Investment advisers really need to know the tax rules,” Mr. Slott says. “They are managing retirement accounts subject to these rules. That is the bigger story.”

I have about $1 million in various retirement accounts, mostly in stocks. I have a real-estate rental that is worth about $300,000 that is intended to generate income in retirement. In light of all I read about the asset-allocation classes of stock, bonds and cash, where would I count the real estate in these models?

Think of that property as stock.

To start, the income isn’t guaranteed, as it would be with, say, a certificate of deposit, says Mark Maisonneuve, a portfolio manager in Farmington Hills, Mich. Yes, you might have a lease and a tenant who makes regular (even increasing) payments. But unexpected expenses to maintain (or in the case of bad tenants, rehabilitate) the property could turn the asset’s return from gain to loss.

Looking ahead, the sale price of the property—if you or your heirs decide to sell—is completely unknown; there is no creditor pledging to make good on the return of principal on a set date as with a bond.

In fact, rental property would go into the more speculative part of one’s stock allocation, and requires close attention, Mr. Maisonneuve adds.

“Landlords consider rentals as safer because they see all the inner workings,” he says. “But property is never as liquid as many stocks, nor do stocks wake us up in the middle of the night to deal with a crumbling foundation or collapsed sewer drain.”

I have two questions. If my wife (born in 1954) takes Social Security before she reaches her full retirement age and continues to work, I understand that her benefits could be reduced temporarily if her salary exceeds certain levels. How does a younger spouse’s full-time earnings affect these thresholds? And if I decide to delay claiming Social Security benefits, how much time needs to pass before I see an increase in my payout? In other words, do benefits increase each month that I wait, or each year that I wait?

Your first question refers to Social Security’s “earnings test.” And you’re correct: People who collect both benefits and a salary before reaching full retirement age could see their benefits reduced if their income exceeds certain levels.

The earnings of a spouse aren’t part of this calculation. So if your wife is collecting benefits and earning a paycheck, her salary—and her salary alone—will determine if there is a reduction in her benefits.

To answer your second question: A person’s Social Security payout will increase each month that he or she waits to claim benefits. (Put another way: You don’t have to wait 12 months for a larger check.)

Let’s say you’re eligible for a benefit of $1,000 at a full retirement age of 66. If you claim benefits at age 63 and four months, your monthly benefit would total $822; if you wait an additional month, the payout would be $828. /agereduction.html.)

Culled from The Wall Street Journal