These days, Americans are living longer, healthier and more productive lives. Thanks primarily to advances in medicine, healthcare, and overall quality of life, average life expectancy has risen steadily and dramatically over the past 50 years. Forty percent of retirement-age men will live to be at least 85, and fifty-three percent of women that age will live to be at least 88. Overall, the average life expectancy in the United States is now 78.6 years, up from 69.7 years in 1960. Retirees and seniors living longer, healthier lives would appear to be a good thing for everyone involved, right? Not so fast, my friends. Without planning properly for it, living long into your “golden years” could quickly go from something you’ve dreamed about to a complete nightmare…particularly if your money dies before you do!
As we’ve discussed in previous articles, planning for your family’s financial security is a multi-faceted endeavor. From investments to insurance, the probability that you (and your spouse and children) are going to live longer adds a few new wrinkles to that planning process. Below are some suggestions for maximizing your financial security for a longer life expectancy.
Re-think “retirement”: It should seem fairly obvious that the longer you live in retirement, the more money you’ll need to…live in retirement! If you’re approaching traditional retirement age, you may want (or need!) to consider ways of forestalling living off of your retirement savings. For example, can you re-career or work in a more limited capacity for several years beyond traditional retirement age to supplement your income? Can you adjust your investment strategy or portfolio to maximize those additional years spent in the workforce? If you’re a younger investor, can you adjust the scope of your investment strategy, or your career arc, or both, to take into account working longer into your “retirement” years?
Plan for the long, long haul: With the help of a certified financial planner, map out a plan for a retirement period that lasts well into your 80s, and perhaps even into your 90s. Strive to understand the implications of long life expectancy on the principal balance of your nest egg; your goal should be to formulate a plan which allows you to live off a reasonable income stream for as long as you can before spending down the principal balance of your investments. Remember that time, in this instance, works just as easily against the value of your portfolio as it does in favor. Although we don’t mean it negatively in this sense…plan for the “worst-case scenario!”
Consider “longevity insurance”: Like a private pension - longevity insurance is another option for retirees seeking to turn their savings into a steady income stream throughout retirement. Unlike other strategies, annuities can offer a guaranteed income stream that will last as long as you and your spouse live if set up properly. With an immediate fixed annuity, you “buy it, set it and forget it.” As long as the insurance company remains solvent, annuity owners generally get a check for the same amount every month – they can even set up payments to last as long as they live, so that the longer they live, the more valuable the annuity becomes. They can also be set up to continue to pay to the surviving spouse in the event of death. Consider diversifying your investment strategy to include fixed-income annuities as part of your “worst-case scenario” planning.