FINANCIAL PLANNING
This week I talk to my financial advisor whose business it is to give me advice on how to have enough money to live on until I die and whose company invests my money (and takes a percentage) better than I can invest it. My quandary is how to plan long term. As I have calculated what I want to spend money on this year, I have realized that the biggest variables in my long term planning are variables that I can‘t calculate. All I can can control is the small stuff, whether I get a tooth implanted in India for $1000 or eye glasses in India where both are much cheaper. I have no idea how to calculate the first two variables below and don‘t see how anyone else can either. My question is how to calculate these three variables.
HEALTH
The biggest variable is how long I will live. Average life expectancy of 85 years olds doesn‘t help much because it is an average. I could get cancer or have a heart attack and die next year (my friends and wife are dying around me) or I could live like my mother until 98. The average of those two is 7 years with perhaps an equal chance any one of these, 1, 7, 13. So how do I plan?
I may have a 50/50 chance of going into long term care which my mother and brother did and my father and sister didn‘t. But Medicaid, I assume, will cover that, if worst comes to worst.
I seem to be in decent health now, but have no idea of what is coming. So I simply can‘t calculate this variable.
The one thing that helps me with the health variable is that each year older I get the closer I am to death and the less careful I have to be that I won‘t run out of money. If I were 65 or 55 and trying to calculate health as a variable it would be more difficult.
ASSETS
I have three sources of income that won‘t run out. Social Security and probably my Presbyterian pension have inflation built in. The monthly John Hancock annuity will decrease with inflation.
My house has shot up in value in this housing bubble and will likely decline some. I am lucky that the land and view will probably remain valuable. But my house could decrease in value.
Because of the drop of stock market by 20% my money invested has declined by $30,000 this year, including the money I took out. But for years the market has been going up so the amount I started with over ten years ago has been declining slowly. The stock market gyrates and seems based as much on emotion as on measurable value. I assume that little of the appreciation of my stock holdings is from dividends or interest and most is from rising or falling market value. It is my hope, but I have no way of knowing, that the stock market as it ebbs and flows will continue to go slowly up and that this money will mostly outlast me, but it may not.
This second variable is dependent on living in a country that is fairly stable with a stable economy and a stable dollar. A war or natural disaster or depression or financial collapse or wild inflation as is happening in other countries where things have fallen apart could happen here. We just assume they won‘t.
So I don‘t know how to calculate either the gyrations of the stock market or the chance of some catastrophe.
MONTHLY SPENDING
It is a little ironic to me that the one thing that I can control is probably in some ways the least important. This last year I have been trying to balance my travel spending and household spending so that I come out even. Last year I did. And I can probably do this again next year. But this is short term and it is the long term variables, particularly my health, but also the stable national economy and stock market that I can‘t predict.
All I can do is to try and live within my monthly budget which means living as simply as possible. In one way it is unimportant to my overall finances whether I spend money on a tooth implant or not, but in another way living simply is probably very important. Living simply, and in the end, learning to live simply and to be content with living simply is probably the best thing I can do to weather any unforeseen events. I do not want to spend more than I am spending now, even if I could. Travel will slow down with age in any case.
But again I really can‘t know the future or plan with certainty. All I can do is hunker down and hope for the best.
BILLYBABA’S WANDERING 