Life Expectancy: The Retirement Issue No One Is Talking About

Many people who save for retirement need to consider how living longer will affect how much money they'll need once they stop working. So what are they supposed to do?

For many people, retirement is a significant financial milestone. However, many people have a huge blind spot regarding retirement planning: the possibility of living longer than they worked.

In the past, people would retire at 65 and live for another 10 to 15 years. However, as longevity science advances, individuals live longer lives, and the idea of lasting 15 years or more in retirement is falling short of reality.

According to a 2019 CDC study, a 65-year-old man today can expect to live until age 76, while a 65-year-old woman can expect to live until age 81. These are only averages; many people may live far into their 90s or perhaps beyond. According to a 2016 PEW Research study, the number of people living to the age of 100 is significantly growing.

Because of the increased life expectancy, people will need to save more money for retirement, and the money they already have will need to be protected to avoid running out of funds.

With individuals living longer lives than ever, retiring for the same number of years as you work is viable. Consider this: you start working at 20, work for 40 years till 60, retire, and live to 100. That's 80 years of growing income needs, with you stopping halfway through to retire and rely on your assets to support you.

Numerous aspects must be considered while developing income streams in retirement while protecting that source of income. It can be difficult, especially considering the stock market's unpredictability and volatility.

According to the Employee Benefit Research Institute's (EBRI) 2019 Retirement Confidence Survey, more than half of American households are at risk of running out of money in retirement due to a lack of savings and the stock market volatility. As a result, retirees must carefully plan and invest in securing a consistent source of income throughout their retirement years.

Consider how much money you made when you first started your profession. Then fast forward to today and compare the two. Hopefully, that figure has increased, but in retrospect, you've probably discovered that those gains were not always a lifestyle improvement but rather an inflation adjustment.

To demonstrate this idea, a 2% inflation rate may appear minor, but when multiplied over ten years, it translates to 20% or 20 cents on the dollar. In other words, earning $50,000 today will necessitate earning $60,000 in ten years.

If you earn $50,000 today, you will need $72,000 in 20 years to maintain the same standard of living. In 40 years, you will need $108,000 to maintain the same standard of living that your $50,000 provides today.

According to EBRI research, only 42% of Americans have attempted to determine how much money they will need for retirement. Given what is at stake, this is astounding.

Most people, I've found, have arbitrary calculations for how much they wish to have saved for retirement, but what indeed drives the decision to retire is frequently Social Security eligibility.

My issue is that many of the folks I interact with make decisions based on their current situation while depending too much on things they cannot control.

That is a lot to take on, especially because so much of what affects your money is beyond your control. Inflation, markets, and taxes are the big three. To compensate for inflation, you must earn more money than the inflation rate is eroding your purchasing power.

To defend against market losses, you should either avoid trading altogether or seek to shield your portfolio through broad diversification tactics that, ideally, do not correlate totally with the stock market.

Instead of merely crossing numbers and hoping for the best, a strategic plan should be established to address these issues and bring things into the retiree's hands.

The bottom conclusion is that retirement preparation should be taken with seriousness. Underestimating the amount of money required to sustain a decent living in retirement, or relying on too many factors outside of your control, can be a significant financial danger.

Working with a financial advisor who specializes in distribution is recommended to develop an optimal strategy for the possibility of living longer than expected in retirement. Then, with cautious planning, retirees can focus on enjoying their golden years rather than worrying about a financial deficiency later in life.

At Copley Financial Group, Inc., with offices in San Diego, CA. and Uniondale, NY., we're here to help you with any question that you may have. So send us an email, give us a call, and the team and myself will be there to help you.

This material has been prepared solely for informational purposes and is not intended to provide, nor should it be relied on for, tax, legal, or accounting advice. Accordingly, before entering any transaction, you should consult with your tax, legal, and accounting advisors.