The positive aspect is that retirees are experiencing extended lifespans, while the downside is that many are not adequately preparing for this increased longevity from a financial perspective.
Anticipating how long you’ll live is a crucial element of retirement planning because it helps determine the amount of money required for a comfortable retirement. Numerous pre-retirees either make speculative guesses regarding their life expectancy or completely overlook it.
So, what’s your expected lifespan? Although no one possesses a crystal ball, the Social Security Administration offers an Actuarial Life Table that estimates the average man reaching 65 will likely live until 82, while the average woman will likely reach 85.1 Although not quite 30 years, this isn’t an area where underestimation is wise.
Given the reality of increased longevity, retirement planning approaches must evolve. Here are some essential factors to ensure financial stability during your retirement years:
1. Initiating Savings Early:
Commencing retirement savings as soon as possible is crucial, especially in comparison to previous generations. Collaborate with a financial advisor to create a plan that considers inflation and potential medical expenses in old age. Be cautious of simplistic “rules of thumb” and seek professional advice.
2. Postponing Social Security:
If you anticipate a longer life expectancy, contemplate delaying your Social Security benefits. For each year beyond your full retirement age that you delay collecting, your monthly payments increase by 8%, up to age 70.2 You can estimate your monthly benefits for various ages using your actual income records.3
3. Catching Up on Contributions:
As retirement approaches, consider making catch-up contributions. These enable older savers to contribute additional amounts to tax-advantaged retirement accounts without exceeding IRS limits. Essentially, it’s an opportunity to invest more now to ensure a larger fund during retirement.
4. Delaying Retirement:
Naturally, postponing retirement is one strategy to account for a longer life expectancy. Extending your working years by a few can make a significant difference. This provides the chance to make additional contributions, avoid withdrawals, and allow your funds more time for potential growth.
5. Transitioning into Retirement:
Some individuals may opt for a gradual transition to part-time work instead of retiring fully, supplementing their income and staying active. For example, a music enthusiast might work at a local record store or offer music lessons. Alternatively, your career might allow for a phased reduction in work hours on the way to full retirement.
6. Planning for Healthcare Expenses:
Longer life often entails increased healthcare needs. Therefore, planning for long-term care and medical expenses, including possible insurance policies, is a crucial component of longevity planning.
7. Adjusting Your Investment Approach:
Typically, as retirement nears, asset allocation shifts from riskier to more conservative investments. However, considering the potential of living 30 or more years in retirement, maintaining a level of growth-oriented investments may be necessary to ensure savings keep pace with living costs and healthcare expenses.
There are certainly other factors to consider regarding longevity, but this list should prompt you to reflect on the significance of thorough planning. Increased life expectancy offers both opportunities and challenges. By recognizing the implications of longer life on retirement and proactively preparing for it, retirees can ensure they are well-equipped to enjoy their golden years without the stress of financial instability.
1 “Actuarial Life Table.” Social Security Administration, 12 Apr. 2022, www.ssa.gov/oact/STATS/table4c6.html. Accessed 9 Aug. 2023.
2 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.
3 “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.
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