Carmelo Flores Laura, a retired cattle and sheep herder in Bolivia, made news in mid-August when some evidence surfaced that he may be the oldest person in the world, and the oldest person to have ever lived. He is believed to be 123.
Or not. Some reports have quoted gerontology experts casting serious doubt on the veracity of the documents showing Laura's age. (The experts state he is merely 107.) Nobody doubts, however, that the toothless Bolivian is old. He also isn't exactly living in the lap of luxury. As he presumably has his entire life, according to the Associated Press, Laura lives in a hut with a straw roof and a dirt floor.
Arguably, plenty of Americans worry about someday being old and forced to live in similar conditions. In 2010, a memorable poll by Allianz Life Insurance Company of North America stated that 61 percent of Americans were more fearful of their money running out than of dying.
So for those of us who would like to live to 123 or some other ridiculously high number, and still have ample income, some personal finance experts suggest the following.
Start saving and investing young. Obvious advice, but it has to be said. The younger you start putting money away for your retirement, the more time you have to pile it up. But you know that, so we'll move on.
Figure out what your yearly income should be when you retire. Also obvious, but it also has to be said.
"There are many factors that impact this calculation, such as lifestyle, culture and cost of living," says Brian Porter, a professor of management at Hope College in Holland, Mich., who specializes in accounting and finance. "A general consensus is that, once retired, an American investor should withdraw no more than 4 percent or 5 percent from retirement savings each year. For example, if an investor anticipates needing $100,000 per year – not a large amount, considering inflation – during retirement, the investor needs to save over $2 million."
Speaking of which: Remember inflation. That is, when you're investing for your retirement, you really need to factor that in.
"Your investment portfolio shouldn't just include stocks and bonds, but real assets, including real estate, commodities and certain hedged strategies," says Allan Flader, a financial advisor with RBC Wealth Management, a financial advisory firm for the affluent and high-net-worth, headquartered in Phoenix. Having some assets that are inflation-adjusted is a must, Flader says. "Otherwise, inflation can kill you."
No kidding. Porter has done the math."An individual who is 22 years of age, planning to retire at 67 – 45 years in the future – will face an average price increase by 378 percent, assuming an annual inflation rate of 3 percent," Porter says. "If the person lives until 90 – 68 years in the future – prices will be 746 percent greater."
And if this hypothetical 22-year-old makes it to 123? Porter says average prices will be 1,980 percent greater.
More specifically and practically, Porter explains that if that 22-year-old lives on $40,000 a year in 2013 and wants an equivalent lifestyle in 45 years, he or she will be spending $151,264 a year by 2058 – and $298,538 in annual income 68 years from now (in the year 2081). And if that 22-year-old does live to be 123 (the year 2114), he or she would need $791,808 per year.
Put another way, Porter says, the gallon of milk that costs $3.50 today (at least in some parts of the country) will – if inflation continues increasing 3 percent every year – cost $13.34 by 2058, when that 22-year-old is 67. And 101 years from now, that milk will conceivably cost $69.28.