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Living beyond 90 will be the norm for millions of U.S. workers, government estimates show. Yet most workers say they would like to retire before age 65.
Although living longer can be a blessing, it also means that an increasing number of retirees may run out of money during their lifetime, placing a big financial burden on their families and society. It’s important to hedge this risk rather than ignore it.
Thanks to better access to health care, medical advances and healthier lifestyles, living beyond 90 is likelier than ever. The number of Americans living to age 90 and beyond has tripled in the past three decades to about 1.8 million people and is like to quadruple by 2050, according to the Census Bureau.
Our expectations for retirement age need to be revised to reflect increasing life expectancies.
How can we plan for higher life expectancies?
First, estimate your life expectancy using a life expectancy calculator. Such tools certainly can’t predict how long you’ll live, but they’re actuarial-based and will give you a decent approximation, given your health, family history, demographic and lifestyle.
Further adjustments may be needed to account for disease or family history of longevity.
When making a calculation for married couples, I often deduct five years from the projected date of death of the higher Social Security earner and add five years to the date of the lower earner. This allows people to adjust their savings to cushion against a loss of Social Security payments or a pension reduction due to an early death. It also increases the likelihood that the couple will provide an inheritance to their children upon their death, if that is important to them.
To illustrate the impact of extended life expectancies, here are a few quick estimates of assets needed in retirement based on the duration of retirement. Let’s say a single retiree stops working at 60 and needs $50,000 in annual expenses net of Social Security income. Assuming she gets a 3% return after inflation on her investments, the approximate amount of total savings needed would be as follows:
Live to 85 = $870,000
Live to 90 = $980,000
Live to 95 = $1,074,000
Live to 100 = $1,116,000
Additional assets may be needed to cover long-term care costs, which may increase markedly as the client ages.
How can you prepare financially for a longer life?
The easiest and most effective ways to hedge for longevity are to work longer and delay taking Social Security until at least your full retirement age, if possible. Increasing the level of risk in your portfolio through appropriate stock allocation may also be appropriate.
A less popular alternative is longevity insurance, which is similar to a deferred annuity. Purchasing a long-term care policy can also reduce the risk that the retiree will exhaust assets on health care. But make sure you talk with a financial expert before opting for these insurance products.
Perhaps most important, it is essential that we change societal expectations regarding retirement age. Advocating for corporate sabbaticals, additional “flex” time and phased retirements would allow workers more balance and time to decompress, so that they enjoy work and don’t mind working longer — well into their 60s and perhaps even 70s.
Ultimately, finding a career that you love is the best investment you can make for your financial future. Loving your job — and happily working longer — is essential to maximizing your savings for retirement.