With Savvly, Investors Could Retire Years Earlier

December 1, 2022

The single biggest question that most clients want to know from their financial advisors is when they can retire – and the earlier, the better.

But how long you as an individual will live has become a real issue that retirement planners are discussing more and more with their clients. Beyond planning how long you will live, they’re figuring out how all the moving parts of that extended life will work – and be funded.

In the past, retirement planning aimed to finance an average of 15 years after the last paycheck. That average is regularly increasing, and statistics show many outliers – people who live well beyond the average – which makes using the average a dangerous assumption.

For example, Social Security says that a man aged 65 today can expect to live to age 84 – for 19 years instead of the traditional 15 – and has a 10% chance of living beyond age 96. The numbers for a woman are 87 years of average expectancy and a 10% chance of surpassing age 98. [Source: https://www.ssa.gov/policy/tools/longevity-visualizer/index.html ]

That is not a miscalculation someone would want to risk.

The typical response to uncertainty

The most significant issue with the longevity conversation is its uncertainty. And, that uncertainty can easily lead to working several more years to increase the size of one’s nest egg before retiring – and to increase their Social Security benefit by delaying their claiming date as long as possible. The goal? To avoid the tail risk of running out of money in old age.

Investors and financial institutions are seeking solutions to deal with longevity risk – or the risk of being one of those people who live well beyond the average. One such solution is an investment called Savvly.

What is Savvly, and how does it address longevity risk?

Savvly offers a fresh investing approach based on private risk pooling to help seniors cover expenses and maintain a lifestyle during retirement, regardless of lifespan. “Risk pooling” means sharing the common financial risk among many people.

In Savvly’s case, several investors can purchase shares in a risk-pooled retirement plan with a recognized stock market index fund as its underlying investment. Investors select a payout date starting in their mid-70s or later and receive their part of the pool’s value on that date.

Investors agree in advance that, should they die before their payout date, their beneficiaries will receive part of their investment’s value, and the balance stays in the pool to enhance the payout of those who reach their payout date.

How much of an individual’s assets should be allocated to a Savvly investment? Allocating 5-10% of one’s retirement assets to a risk pool in their 50s or 60s should provide longevity protection by a target date in their late 70/80s/early 90s. This percentage leaves the lion’s share of their income and net worth accessible to spend as they choose.

Because Savvly brings certainty about a significant payout at a known age, it reduces the uncertainty significantly, allowing people to retire several years early. Investors know they will have a replenishment of their retirement funds should they reach the age they select.

In support of that concept, modeling at Savvly indicates that someone can retire 4-5 years earlier and still have significantly more assets left over for their beneficiaries.