More Time Than You Might Think: Life Expectancy and Retirement Planning
One of the key variables in retirement planning is longevity. There’s a big difference between drawing down your nest egg over ten years, or needing it to last for twenty.
To get an idea of how long they might need their money to last, many people look at statistics on longevity. A popular metric is the one put out by the Centers for Disease Control and Prevention (CDC). According to their latest statistics, the average life expectancy in the U.S. is 77.5 years.1
People then use this number as a ballpark estimate. They figure that if they retire at 65, they’ll need their funds to last about twelve years.
However, they are most likely significantly underestimating how long they will live. This is because the CDC number takes the average of all lifespans—infants who died shortly after birth, young people killed in car accidents, middle age people who succumbed to cancer. And the number they come up with is life expectancy at birth.
In reality, the longer you live, the greater your life expectancy. Additionally, there are factors such as where you live, your overall health, and your gender. Taking these into account, a 65 year old male can (on average) expect to live to 84.3 years. And a female the same age can expect to reach 86.9 years.
With this more likely scenario, not only will your retirement income need to last twenty years or more, but you will need to plan for the kind of day-to-day life you’ll lead in your 80s. For example, you probably won’t want to live in a home with a lot of stairs. And you’ll need to plan on getting more help on a regular basis.
According to the U.S. Department of Health and Human Services, nearly 70% of people aged 65 and over will need long-term care at some point. Right now the average cost for assisted living is more than $5,300 a month. And that number rises sharply as you require an increased level of care.
Longevity is a blessing. And if you plan ahead for the inevitable changes as you age, you can face your golden years with much less worry.
Most importantly, preplanning will give you the advantage of being able to make needed life changes on your terms and according to your schedule. You don’t want to be in a position where you’re forced to liquidate major assets (like a house) on short notice, or where your loved ones are scrambling to find you a suitable place to live.
Your trusted advisor can help you explore your options well in advance, so that you have plenty of time to prepare financially and emotionally for a long retirement.
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