People are living longer. This creates bigger challenges for your nest egg.
Video: People are Living Longer
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Longer Life Expectancies
There is an old joke in the life insurance industry. What is the difference between an actuary and a mob boss? The actuary can approximate when you will die. The mob boss can tell you the date and time.
According to the Social Security Administration, a 65-year-old man has a life expectancy of 84 years. Women live longer than men. A 65-year-old female should expect to reach age 87. Keep in mind these are median ages. This means half of the people will live to be even older.
Are you married? The “how long” question becomes more complicated.
There is a 51% chance at least one spouse reaches age 90. And there is about a 9% chance both will live that long.
What does this mean to you as you think about your retirement? It means—at a bare minimum— you should plan to live at least 20 years in retirement. But that may not be enough. The Social Security Administration estimates one in four of today’s 65-year-olds will reach age 90. They project 1 in 10 will reach age 95. It is very possible your retirement savings might need to last up to 30 years.
Living Longer Creates Challenges
A couple of weeks ago we shared a statistic with you. Almost half of Americans say running out of money in retirement is their primary concern. The idea you may live 30 years in retirement adds to the stress.
Here is the challenge we all face. Your retirement savings has to:
- Generate enough income for today.
- GROW over time to produce MORE income in the future
- And not go to zero before your pulse does.
And you have to deal with a lot of external forces such as
- A historically low interest rate environment which shows little sign of improving.
- A volatile investment world. Which despite current events has always been, and will always be like this.
- And the ever-present rising costs of the things we buy.
Living Longer Means We Have To Plan Better
This is not an easy puzzle to put together. But it helps if you look at the big picture. Many of the choices you make impact your retirement savings. Here is a quick example of what we mean.
Let’s compare your decision to retire at age 62 vs age 65.
Starting your Social Security early results in a permanent reduction of benefits for both you and your spouse. It can result in a larger out of pocket expense for health insurance.
This can place more stress on your savings in two ways. Your savings has to last three years longer, and it may have to generate more income.
But if you wait until age 65, those early Social Security discounts shrink. You are eligible for Medicare. This can reduce the stress on your savings.
And this is just one example. We face a lot of choices which can impact how long your nest egg will last.
Living longer poses one of the biggest financial challenges to retirees. It requires thoughtful planning and good choices to improve our chances for success.
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Neal Watson is a Certified Financial Planner™ Professional and a Financial Advisor with Fleming Watson Financial Advisors He typically works with people who are planning for retirement. Fleming Watson is a Registered Investment Advisory firm located in Marietta Ohio. Our firm primarily serves Marietta, Parkersburg, Williamstown, St. Marys, Belpre, Vienna and the surrounding communities in Washington and Noble Counties in Ohio and Wood and Pleasants county in West Virginia.