Not everyone thinks this way, but the idea of ‘living forever’ appeals to many people. Or, at least, the thought of living a longer, healthier life.
There can be many upsides to living longer. Think about how you could share more in the lives of loved ones from younger generations. You would have a front-row seat to see exciting developments in technology and medical services.
You might have the chance to witness new history-making events. At the very least, it would give you the opportunity to see the impact of your lifelong legacy.
Over the past century, life expectancy in the United States rose by over 30 years. It’s no wonder why financial researchers say that people can spend as much as one-third of their lives in retirement nowadays.
Advances in healthcare, medicine, and technology have led to better management of childhood infectious diseases as well as improvements in healthcare for adults’ quality of life. Because of this, people face the prospect of longer retirements and more years that they will have to cover financially than was so in the past.
It’s clear that increasing life expectancy has and will continue to have big effects on retirement. Among other goals, the primary challenge is figuring out how much income you will need to sustain your preferred lifestyle over many years.
What is Life Expectancy?
Simply put, life expectancy is an estimate of how long a person might live based on statistical averages. There are many factors that are part of this estimate, from lifestyle and household economic status to access to healthcare and diet.
Of course, these are averages, which means that some people might live for much longer or much shorter than what life expectancy statistics suggest. This can be seen in examples like the “maximum lifespan” of those who hold the longest-living records of all time.
The oldest person ever whose age has been independently verified is Jeanne Calmert, a Frenchwoman from Arles. She lived to be 122 years old, though some researchers have disputed this record.
The oldest person whose age has been indisputably verified is Jiroemon Kimura of Japan, who lived to be 116 years old.
How Life Expectancy Has Changed Over the Years
In 1900, the typical life expectancy from birth in the U.S. was roughly 47.3 years. By 1950, it had increased to 68.2 years. The graph below covers estimated life expectancy from 1900 to 1928, when government researchers used slightly different statistical means to calculate expected life statistics than in the years thereafter.
The graph below captures the rest of this increase life expectancy going into the 1950s and beyond. From there, Americans’ average expected lifespans continued to see an upswing. For the next five decades, it increased by roughly 10 years to 78.5 in 2010. But in recent years, however, life expectancy has reversed course somewhat.
The pace of growth in life expectancy increases has slowed over the past decade. In 2017, life expectancy fell to 78.6, down from 78.7 years in 2016.
What You Can Do to Plan for Life Expectancy in Retirement
Here’s what you can do to plan for the possibility of a long lifespan in retirement:
1. Plan for more time beyond life expectancy.
Since expected life estimates are just averages, they don’t paint a full picture of how long someone’s retirement might last. If your family has a history of longevity, then you may well live substantially longer than the national average.
A rock-solid financial plan will be prepared for ‘contingencies,’ particularly for the possibility of an extended lifespan in the golden years. Many advisors advocate for financial planning with benchmarks going into the 90s or even 100s. The rationale behind this is to account for uncertainties.
The ultimate goal? To help retirees be financially secure and have predictable certainties built into their strategies for the long haul as much as possible.
2. Build a solid picture of what your retirement spending and income needs will be.
Use your current spending, current income, and future lifestyle expectations as a guide. They are an excellent indicator of your future retirement spending and income needs. Some expenses that you are paying now will be reduced or even go away entirely.
A few might be mortgage payments, spending tied to children, and transportation for a job, for example. Meanwhile, other spending will likely go up, such as for healthcare.
You will eventually need to be prepared to pay for long-term care expenses. Long-term care policies are now more expensive than ever, and you also run the risk of losing the money that you put into it if you end up not needing this type of care.
Another solution might be to purchase a life insurance policy with accelerated benefit riders. These features can pay out part or all of the death benefit to you while you are still living. To be clear, you must meet certain requirements, such as becoming incapacitated or unable to perform at least 2 out of 6 of the activities of daily living (ADL).
The more you can delve into your personal numbers now and forecast what your future spending and income might be, the better the foundation you will have to plan around and on.
3. Evaluate your portfolio and determine if it will pay a sustainable income for what can be a very long retirement.
Will the assets that supply your retirement income streams go up and down based on market activity? The amount of income you draw from these sources will vary based on their performance.
Put aside Social Security benefits for a moment. What other assets can pay you a “permanent” income stream that isn’t likely to waver from month to month?
Do you have enough of this reliable income to cover your monthly living expenses and basic lifestyle expectations? Your income strategy also needs to account for the possibility of “sequence risk.” In everyday terms, this is the effect of how financial losses early in retirement impact your lifestyle from thereon.
4. Evaluate your retirement income options.
An immediate annuity may be a good choice for you if you are seeking a higher level of guaranteed income. These vehicles provide a guaranteed level lifetime payout that is based upon either your single life expectancy or joint life expectancies. In the case of joint life expectancies, your spouse is also one of the owners of the policy.
Immediate annuities can provide more income certainty over time than other types of conservative instruments such as CDs, Treasury securities, or savings bonds. But, perhaps best of all, you can’t outlive the income that is paid from a SPIA, even if you have exhausted the entire amount of your principal.
A fixed index annuity can also help protect you from market losses and sequence risk — not to mention also pay you a guaranteed lifelong income. It earns interest based on a portion of when the underlying financial benchmark (such as the S&P 500 price index) rises in value.
However, if the benchmark drops in value, you won’t lose anything. Since the insurer provides this protection of your principal and already-earned interest, in exchange it limits somewhat the growth potential of your money with caps, participation rates, or spreads.
Ask your financial professional for details on any index annuity contracts that you might be exploring.
5. Decide if your retirement financial plan gives you confidence that you won’t run out of money.
You worked hard to reach this point. Now you want to be sure that you have the financial resources for the lifestyle you want. If you need to catch up on savings or make other changes to start preparing yourself for your retirement goals, now is an excellent time to start doing those.
Consider working with an experienced financial professional. Look for someone who listens carefully, acts in your best interest, and can offer you solutions that bring you peace of mind.
If you are behind the eight ball on retirement savings, you may have to work longer, in some cases. That will give you more time to accumulate the savings you need for a comfortable retirement.
This strategy also reduces the number of years that you will have to cover with your savings. You can also wait to take your Social Security benefits until you reach the maximum retirement age, 70. This will enable you to collect a benefit that is roughly 32% larger than what you would receive if you opted for benefits at your full retirement age.
6. Ensure your plan prepares for other risks in retirement.
Your financial plan covers lots of ground: it’s a roadmap, a guiding star, and a safety net. Be sure that it accounts for other risks that can pop up when you are retired. One scenario, for example, is life events that can change your financial situation quickly.
Your financial professional can help you walk through the “what ifs” of the future. They may even cover some questions or possibilities that you might not think of otherwise. Their guidance can help you make the most of your income and savings, net of inflation, taxes, and fees.
Count on a More Confident Retirement by Planning Today
There is no time like the present. Start taking steps for your retirement today so you can enjoy more confident tomorrows in the future.
Need help from a financial professional with your retirement? Or maybe you want a second opinion of your existing strategy. Help is just a click away at SafeMoney.com.
Use our “Find a Financial Professional” section to connect with someone directly. You can request an initial appointment to discuss your personal situation and retirement goals. Should you need a personal referral, call us at 877.476.9723.