Well, it used to be 65. A lot of factory workers who smoked took early retirement at 55 with reduced wages and pension benefits, but increased time for fishing. And all this was great during the FDR Era. The average white male lived to about 67 and change, the average female, about 69. We died peacefully in a bed filled with soot from Camels and Menthol Parliaments a la Marlboro.
But then we stopped smoking. We stopped eating meat every night. We started working out. We stopped driving drunk. We started getting vaccinated for pretty much everything. We started drinking Diet Whatever. And lo and behold, today, the average life span for most Americans is around 82 if you're a male and 84 if you're a female. And that number is still growing.
So if you retire at 65, today, you need enough cash around (or investments that throw cash, or are sellable), to pay for 22 years of life instead of just two and change. Huge difference. Tons of very old people driving Uber to just make ends meet.
So what happens when they, en masse, run out of money? Answer: Bad things.
So yeah, that's why this term is even a Thing. We have to start discussing it more as a nation or we're going to start looking a lot more like Bangalore or Delhi than New York or Miami. Great nations don't let millions beg on the streets.
Related or Semi-related Video
Finance: What is sequence risk, and how ...2 Views
Finance Allah Shmoop What is sequence risk and how can
it derail retirement All right people You worked as a
plumber The requisite You know butt crack growth started when
you fell in love with non light Miller beer in
your early twenties And it grew as you did in
direct proportion With your savings you put as much as
you could into your four Oh one k overtime You
grew a plumbing in parts business nicely You owned a
small building you invested in stocks that paid a dividend
If you bought bonds that matured at different times you
bought a last to die life insurance policy for your
kids and you paid off your home mortgage Yeah So
at the end of your working career you have a
whole mess of assets which you will gradually sell off
the hey for Hawaii resort bills to pay from my
ties with pink umbrellas in him And you know to
pay for his and her massages for you and your
wife of forty three years So where does sequence risk
come alive in this otherwise beautiful American dream story Well
let's start with the bonds When you were fifty three
you put ten grand into a six percent corporate fund
coming do twenty years later at seventy one Now with
only two years ago until that bond matures Well you
know you have a few more interest payments due coming
to you And then that bond pays ten grand in
two years It's original principles being returned to you Luckily
you bought one of these bonds every two years in
your fifties and sixties such that you knew they would
come to our rather pay back your original principle of
ten grand every two years for a decade in change
You have all this cash cash Ola coming to you
from other places as well It comes in the form
of dividends from your stocks and the likely sale of
your building and a whole bunch of other little assets
that you'll slowly pull out of Your four Oh one
k pay taxes on it So where does sequence risk
then Come in Like what's wrong with all this Well
for you Joe the plumber you've done an excellent job
diversifying the cash liquidity needs that you'll have to fund
the rest of your life together You know with your
wife The cash comes in waves gentle waves of ten
grand here twenty grand there of stream of dividends So
you always have cash handy to pay your bills It's
really easy right Well what about Bob Bob the plumber
not the builder He made the same money you did
but has everything in growth stocks and one big fat
building He owns no bonds no other cash producing entities
That's it So he's been doing just fine selling shares
Obama's on Facebook Google Netflix And if you have a
growth stocks would performed well But things never work out
so well in the real world After President Oprah decided
to regulate Silicon Valley those stocks all got cut in
half and then worse and kept falling and falling and
falling And well now Bob has no liquidity because he
depended on selling growth stocks to fund his life Even
though the stocks are crazy cheap now he still has
to keep selling them Pay taxes on well any gains
he may still have left from when he bottom a
while ago and then use those cash proceeds to hopefully
be able to fund his life He also has that
building which is in a bear market now and it
can't really sell so he'll get only a third for
it If he has to sell it right now can
he borrow against it Kenny margin against his stocks Really
risky If you start doing that because of stocks keep
going down then your margin executes a call provisions and
basically you lose all of your stocks meaning if stocks
go down and your margin rates are more than fifty
percent the broker's likely will force you to sell even
more stocks And so you lose even more money and
it means probably a lot fewer mai tais for Bob
So sequence risk is all about retirement planning so that
retirees have oodles of cash coming in regularly safely to
fund the lives they want you know in their golden
years there Why Well because most hotels won't take flush
valves or trap vents or toilet seats as payment eh
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