Your Retirement and Longevity

We all hope for a long, healthy life but often fail to consider that in our retirement financial planning.  Life expectancies are significantly longer than they were just a generation ago, so old rules-of-thumb may well leave you coming up short.  Once assumed to be 10 to 15 years, retirement now often stretches to 30 years.

Expectations

Life expectancy has grown, and can be expected to continue to grow, so you can’t simply base your financial needs on how long your parents or grandparents lives.

Forbes reports some interesting statistics [1].

The average 65 year old is most likely to live another 20 years, but there’s a 1 in 20 chance of living another 30 years or more.  And, sadly, a 1 in 4 chance of only having another 10 years or so.  For couples, with both at about 65 there’s a 72% chance of one of the two living to 85.  And a 45% chance at least one will make it to 90!

At any given age the older you are now the more likely it is you’ll live beyond these expectations, having already made it past some health and accident risks.  One really doesn’t know so it’s important to consider several scenarios rather than plan for a single number.

Planning

Financial planning for retirement is a skillful matching of how much you can withdraw each year for how many years with your investment portfolio. 

“Live rich and die poor” has its attractions.  But planning to spend your assets down to near zero is risky, and could leave you in a desperate situation in those final treasured years.  Ideally one might plan for living indefinitely, leaving an inheritance for children, grand children, and charities.  But many of us are unable to accumulate enough principal to make that practical.  Tax reduction strategies can also have a big impact on strategies and in turn your annual withdrawal from retirement funds, so consulting an experienced financial and tax advisor is a wise move.

The Big Differences

Exactly how does increased lifespans affect retirement finances?  In several ways beyond simply needing annual disbursements for more years.

  • Inflation raises living expenses exponentially so it’s vital to have investments that hedge against inflation.  For many this means that after transitioning from an emphasis on growth to that of capital preservation as one reaches retirement age, it’s still necessary to maintain some higher-return investments while carefully managing risk. 
  • That usually involves holding some investments in the stock market but with a preference to dividend equities and exchange-traded funds rather than individual growth stocks.
  • Working longer and retiring later offers financial benefits, and may even be a better lifestyle choice.  First you’ll have a few more years to add to your retirement funds.  And fewer years you’ll be withdrawing from it.  Second, your social security benefits increase by some 8% per year up to age 70, and that’s a good annual return at low risk.

The Big Picture

Forbes notes that 25 years is a reasonably conservative estimate of how long you’ll be drawing down your retirement accounts.  You can be pretty sure that will be for at least 10 years and that it’s unlikely to be longer than 30 (unless you retire early or are in exceptionally good health with a healthy lifestyle and a bit of luck).

This knowledge is also important in making life decisions and making the most of those golden years.  Twenty to thirty years is time for several great new chapters in your life, perhaps even a new career.

https://www.forbes.com/sites/simonmoore/2018/04/24/how-long-will-your-retirement-last/

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