The good news? Retirees are living longer. The bad news? Many aren’t planning for it financially.
Life expectancy is a key piece of retirement planning. After all, you’ll need to estimate your lifespan to determine how much money you’ll need to retire comfortably. Many pre-retirees speculate on this figure or overlook it entirely.
So, how long will you live? While no one has a crystal ball, the Social Security Administration provides an Actuarial Life Table that estimates the average man will live to 82, while the average woman will make it to 85.1 That’s not quite 30 years after the typical retirement, but this isn’t an area where you want to estimate low.
How Long Should You Expect to Live?
The Social Security Administration notes that at 65-years old, the average man can expect to live to roughly 84.3 years of age, whereas the average 65-year old woman can expect to live until age 86.6. This means that on average, Americans can expect to spend about 20 years in retirement.
However, there is a strong chance that you should plan to be in retirement much longer than 20 years. One out of every four 65-year olds will live past the age of 90, and one out of every 10 will live past the age of 95. Are you prepared for three decades of retirement? Most people aren’t.
Given the reality of increased longevity, retirement planning strategies must adapt. Here are some key considerations to help ensure financial stability throughout your golden years.
Develop a Clear Vision of Your Retirement Lifestyle
To crate a well-conceived plan and have the will to execute it, you need a clear vision of your lifestyle in retirement. Start by defining your goals and asking yourself:
- Where will I live?
- Where will I travel?
- What will I drive?
- How will my hobbies change?
- Where will I donate my time and money?
It’s important to factor realistic spending assumptions into the cost of your retirement, based on your goals and desired lifestyle.
Saving Early
It’s crucial to start saving for retirement as early as possible, even more so than previous generations. With the help of a financial professional, create a plan that accounts for inflation and possible medical expenses that may come with old age. Beware of simple “rules of thumb” when it comes to retirement savings and get a professional opinion.
Delaying Social Security
If you anticipate a longer life expectancy, it’s worth considering postponing your Social Security benefit. For every year you delay collecting beyond your full retirement age your monthly payouts rise by 8%, up to age 70.2 After that, there’s no further increase. You can gauge your monthly benefit for different ages using your real income records.3
Making Catch-up Contributions
As you get closer to retirement, consider catch-up contributions. These allow individuals aged 50 or older to add extra amounts to tax-advantaged retirement accounts without surpassing IRS limits. In essence, it’s an opportunity to invest more now to ensure a larger fund during retirement.
Delaying Retirement
Naturally, postponing retirement is one way to account for a longer life span. Pushing back a few years could make all the difference. This may give you an opportunity to add additional contributions, avoid withdrawals, and to grant your funds more time for potential growth.
Phasing Into Retirement
Some individuals may choose to transition into part-time work rather than fully retiring to supplement income and stay active. For instance, a music enthusiast might take up a position at a local record store or offer lessons to budding musicians. Or, perhaps your career enables a phasing out approach, working fewer days or hours on your way to full retirement.
Planning for Healthcare Needs
Longer life often comes with increased healthcare needs. Therefore, planning for long-term care and medical expenses, including possible insurance policies, is a vital component of longevity planning.
Health insurance is the most expensive and bothersome insurance the average individual carries. Unfortunately, many people approach retirement and believe that the burden of health insurance will be lifted. In reality, even when covered by Medicare and other supplemental insurance plans, there are still substantial costs left for the individual to pay.
In addition to premiums, deductibles, and co-pays, prescription drug costs are likely to rise. In the last decade, the average annual cost of one brand-new drug used to treat chronic health conditions cost a senior $5,800 in 2015, compared to $1,800 less than a decade earlier (AARP). Planning for a longer retirement requires keeping a keen eye on the rising cost of healthcare in the US.
Adjusting Your Investment Strategy
Start to plan for a longer retirement by adjusting your investment strategies — like saving more, being slightly more (or less) aggressive with your investment strategy, etc. We help our clients have these bases covered, so consider calling us if you’d like someone to review your investment strategies. Here are some of the situations we can help guide you through:
- You aren’t confident that you are still on-target for your retirement and legacy goals
- You are within 5 years of retirement
- You have recently experienced a significant change in your income
- Your investment accounts are exposed to higher risk due to natural market fluctuations
Are there other factors to consider when it comes to longevity? Absolutely. But hopefully this list gets you thinking about the importance of proper planning. Longevity is a gift that presents both opportunities and challenges. By recognizing the implications of increased life expectancy on retirement and proactively planning for longevity, retirees can ensure they are well-prepared to enjoy their golden years without the burden of financial stress.
Book a meeting with the financial professionals at Emerj360 to create a financial plan that can help you on your journey to enjoy your retirement years.
Sources:
- “Actuarial Life Table.” Social Security Administration, 12 Apr. 2022, www.ssa.gov/oact/STATS/table4c6.html. Accessed 9 Aug. 2023.
- Carlson, Bob. “Here’s More Evidence In Favor Of Delaying Social Security Benefits.” Forbes, 24 Feb. 2023, www.forbes.com/sites/bobcarlson/2023/02/24/heres-more-evidence-in-favor-of-delaying-social-security-benefits/?sh=3fcf61166e96. Accessed 9 Aug. 2023.
- “Longevity Risk: Could You Outlive Your Savings?” Charles Schwab, 9 Jun. 2023, www.schwab.com/learn/story/longevity-risk-could-you-outlive-your-savings. Accessed 9 Aug. 2023.
