R101 #3 - What if you live a long time?

So here’s the deal. You might think that your biggest risk during retirement has to do with the financial markets. That is a risk, but we need to talk about life expectancy first.

I often tell clients that we could put a retirement income plan together that is very likely to be successful if we just knew how long we need to plan for. Funding a retirement of 5 years is much easier than funding one for 35 years.

You might have a sense of how long you’ll live. You think about your parents, other family members, research, news stories, and probably have a number in your head. The reality is that averages only mean that a LOT of people live longer than average.

In fact, for every year you are alive, the average life expectancy for people who have survived that long goes up. The news tells us that women born today can expect to live to around 80. But what about those of us who have already been alive a long time?

If you were born female in 1960, you could expect to live to about 73. However, if you made it this far, and you’re turning 65 this year, you have something like a 90% chance of living past 77, and about a 10% chance of living to almost 100 if you’re in good health!!! You can check out the Longevity Illustrator if you’re interested in personalized results.

If you are part of a couple, your plan needs to work for 2 people instead of just one. That makes deciding how long to plan for more complicated. It also introduces changes to the plan when the first person passes away.

Along with longer lifespans to plan for, I’ve seen in the news recently that the extra years are not necessarily “good” years. They may be plagued with illness that is chronic and requires long-term care. This makes retirement more expensive.

The other point I want to bring up is that some people are naturally more interested in spending more in the early years of retirement to make sure they enjoy life while they can, while others are very fearful of outliving their money and prefer to focus on ensuring they have plenty of funds for later years. It’s important to know which one you are so you’re comfortable with your retirement income plan.

The good news is that once your plan is built, it’s very easy to illustrate the impact of various life expectancies. In future posts I will discuss how to approach some of the choices you have to make. You may decide you’re willing to spend a little more now. You may consider financial products that will reduce longevity risk. Because the flip side of planning to live too long is passing away sooner than you planned. It’s my goal to help clients weigh the risks and make informed decisions.

Next up are risks having to do with the financial markets - what you thought was the main risk you were planning for!