People are living longer than before, leading many to ask: “How long could my retirement really last?” In generations past, retirement represented a relatively short period of time in most peoples' lives. They would work until they were 60 or 65 and then live perhaps a few more years before passing away.
But this has become a thing of the past. Today, some retirees could live for as long as another 30 years after they finish with their careers. Many of them are now travelling around the world, starting new businesses, or doing charity work.
The answer to this question will depend upon many factors, such as your projected longevity, financial resources, and current health. If you come from a family of long-lived forebearers, then you may have a good chance of living that long yourself. If you smoke or drink heavily, then your lifespan may not last as long as it would if you quit doing those things.
Thanks to advances in medicine, technology, and wellness, people's lifespans are longer than before. The National Vital Statistics Report from the Department of Health and Human Services revealed that the average American's lifespan has increased by 30 years over the past century.
How Long Could Your Retirement Last?
One report by the Society of Actuaries shows how long a retiree might spend in retirement. Their analysis of data from the Census Bureau indicates that a 65-year-old couple today has a 72% chance of one spouse living to age 85, a 45% chance of one spouse making it to age 90, an 18% chance of one spouse living to age 95, and a 5% chance of one spouse living to age 100.
In an analysis on RetirementResearcher.com, Dr. Wade Pfau projects that life expectancy has increased by about 1 year per decade since 1950. He looked at data from the U.S. CDC. You can see the big gains in life expectancy for 65-year-old men and women since 1950 until 2010:
Historical Data for Remaining Life Expectancy at Age 65
Source: Dr. Wade Pfau, RetirementResearcher.com, "How Long Can Retirees Expect to Live Once They Hit 65?," analysis of Center for Disease Control statistics.
A baby born in 2017 is expected to live to be 78.6 years old, according to CDC statistics. If your life expectancy at birth was 78 and you were currently 77 years old, that data doesn't mean that your life will end next year. Instead, it means you have sidestepped many risks along the way and you likely have many years left to go.
In another article, Forbes contributor Simon Moore writes of another way to think about life expectancy statistics: the chances of living for another decade depending on your age now. In his analysis, Moore looked at Social Security Administration data from 2013 and estimated the probability of living another 10 years depending on the starting age.
Chances of Living 10 More Years by Current Age (65-100)
Source: Simon Moore, Forbes.com, "How Long Will Your Retirement Really Last?," author's analysis of 2013 Social Security Administration data.
Based on his findings, Moore observes that up until their mid-seventies, people have a good chance of living for another decade. But these chances start declining in the early eighties and from there.
Of course, life expectancy statistics are merely averages. Based on Moore's analysis, a 65-year-old retiree would have a 1 in 20 chance of living for another 30 years and a 1 in 4 chance for living another 10 years or less. To overcome this shortfall, Moore also created a breakdown of how long someone's retirement may last, depending on their age at retirement.
If someone retired at 65, they would have a:
- 76% chance of spending 10 years in retirement
- 38% chance of spending 20 years in retirement
- 5% chance of spending 30 years in retirement
What about if someone retired at age 70? According to Moore's estimates, they would have a:
- 65% chance of spending 10 years in retirement
- 20% chance of spending 20 years in retirement
- 1% chance of spending 30 years in retirement
Finally, what if someone's retirement age was at 75? Moore estimates that they would have a:
- 49% chance of spending 10 years in retirement
- 7% chance of spending 20 years in retirement
- roughly 0.1% chance of spending 30 years in retirement
In short, the length of your retirement depends in large part on the age of when you actually retire. While some people have a specific age at which they retire, others are forced to leave the workforce early. Still, others may not quite retire when and how they wanted due to other reasons, such as health concerns or family caregiving needs.
How Should You Plan for a Long Retirement?
So, a conservative estimate for how long a retirement might last would be 25 years, assuming someone retired at 65. But prudence would call for planning for a longer time, say a 30-year span, especially if you are in your 50s and retirement is still quite some time away.
Now is a good time to think about how you can prepare for a secure financial future. What are some steps that we can start taking now to enjoy a comfortable retirement that lasts for potentially decades?
The most important objective is to get an idea of what your retirement spending will be like. Your current spending patterns will be a great guide.
Write down on paper a monthly snapshot of your monthly income needs. Include essential spending such as housing, food, and utilties as well as other monthly living expenses that are particular to your lifestyle. You want to create a snapshot of what you need to cover your lifestyle on a monthly basis. Multiply these numbers by 12 to come up with an annual income number.
Include 'Nice-to-Dos' and Healthcare in Your Retirement Budget
Chances are you also have retirement goals that you wouldn't count as part of your monthly retirement living expenses, such as vacations, hobbies, or traveling to spend time with family. Don't forget about including these "nice-to-dos" in your budget. You want as complete of a retirement spending picture as possible.
You will also need to factor in healthcare costs. A general rule of thumb is that your spending for healthcare and medical services will go up as you age. Your eligility for Medicare starts at 65, and decisions on how you use Medicare can depend on whether you are still working (and what your health coverage options are at work).
Then there is long-term care to consider. Paying for that without insurance can quickly wipe out a household's finances, but insurance isn't inexpensive either. With all of these expenses on paper, you can start working on how you will have a sustainable spending strategy for your retirement.
New Options for Long-Term Care
Some people might choose to pay for a traditional long-term care policy. If you want alternatives, you might consider one of the newer types of life insurance policies that has accelerated benefit riders with long-term care coverage. The advantage with this sort of insurance is you and your family will get back the money in some way.
If you aren't able to perform two of five acts of daily living, the life insurance policy will 'accelerate' proceeds to pay for long-term care services and supports on your behalf. And, on the other hand, if those proceeds aren't used for long-term care or other qualifying care situations, your heirs will receive a death benefit.
Creating a Sustainable Retirement Income Strategy
If you are concerned about outliving your income, you may want to consider purchasing an annuity. There are several types of annuities available in the marketplace today. Many of them have guaranteed income riders that can maximize your income and pay you income for life, even if you deplete the entire value of the contract.
Longevity insurance, also known as a qualifying longevity annuity contract or QLAC, is also another option. This type of insurance requires substantial money upfront, and then begins to pay out a very high monthly amount once you reach a certain age, such as 85.
Seek Professional Help
Above all else, don't wait to enlist the help of a qualified financial professional in designing your cash-flow for retirement.
Many financial professionals have sophisticated planning software that can project virtually any type of income or expense, including what would happen to your assets during a bear market. A good financial professional can be an invaluable asset to you as you plan for retirement.
Don't let fear or uncertainty stop you from beginning to work on this vitally important task as soon as possible.
If you are looking for personal guidance from a financial professional, help is a click away. Financial professionals stand ready to assist you at Jennifer Lang Financial Services. Contact us today.