When our republic was founded 240 years ago, a citizen could expect to live about 35 years. Now, most people expect to live that long in retirement! When Social Security was established in 1935, the average life expectancy was 61 . According to the Social Security Administration, an American who turns 65 today has a life expectancy of 86. Thanks to advances in technology, nutrition and the medical sciences, we now have the hope (if not the guarantee) of living 50 years longer than our colonial forefathers, and 25 years longer than those who lived through the Great Depression.
Think about this for moment.
Today, we get many more years to enjoy our family and friends, to read books and see movies, to travel, to take naps, to take up new creative endeavors and pastimes. With a bit of luck and good planning, the period we know as retirement can bring a whole new era of life and discovery. One where we can choose to continue work in jobs we enjoy, or to volunteer our time engaging in activities that enrich our lives and positively impact the world around us. For those fortunate enough to have generated sufficient wealth, this stage of life presents an array of choices that our ancestors could not have imagined. But to take full advantage of this increased longevity, detailed planning is required.
Aiming For One Hundred
When we develop financial plans for younger clients, we always encourage them to assume (and save as if) they will enjoy a very long life, living until age 100. Considering that the longer you live, the more savings you will require, this seems like a reasonably conservative approach. I’ve found that many clients protest this assumption, however, claiming they have neither the desire or the expectation of achieving the century milestone. But planning to live until 100 is not all that farfetched. For decades now, life expectancies have been on the rise. And researchers have consistently noted that they have not done so equally. For example, according to a recent Brookings Institution study, higher income earners and those who accumulate savings can expect to live 12 to 14 years longer than their lower income, under-saved counterparts. This means that absent some known health issue that would otherwise limit life expectancy, most professional, well educated people today should be planning to live at least into their mid 90s, and probably until age 100.
A Fate Worse Than Death?
The prospect of living 35 or 40 years in retirement has significant implications to how people plan for their futures, and it raises the stakes when they answer questions such as: when to retire, how much to save, when to claim social security benefits, and how to invest their savings. Essentially, their plans must address so-called longevity risk — the risk that they live longer than expected, exhaust their savings and die in poverty or become financial burdens to relatives.
In 2010, Allianz conducted a survey and asked respondents if they were more afraid of dying, or running out of money before they died. 82% of married adults in their 40s said that outliving their savings would be a fate worse than death. Even 61% of baby boomers admitted sharing this belief.
The Future Retirement Crisis
Americans have reason to be concerned. In a recent survey from the Employee Benefit Research Institute (EBRI), 42% of working Americans had saved less than $10,000 for retirement, and 50% of workers admitted they hadn’t even investigated how much savings they will require . Clearly, ignorance, in this case, does not lead to bliss. It results in anxiety about the future.
Many younger workers surveyed about this believe they will simply need to work longer, or that they can successfully catch up on savings later. The problem with such a strategy is that the longer one waits to save, the more one has to save in order to make up for lost time and those lost years of compounded returns. Put simply, a dollar saved today is far more valuable than a dollar saved tomorrow — or years into the future.
Further, although many workers (37% in 2016) say they expect to work beyond age 65, in reality, only a small number of post-retirees (15% in 2016) report actually doing so — most citing factors beyond their control such as health issues or changes at their company that eliminated their jobs. In short: saving for retirement isn’t like sitting for a college exam. You won’t necessarily be able to “cram” at the end of your career and expect to catch up.
Success Is Possible
We firmly believe that living a long life and enjoying the lifestyle you desire can be accomplished with sufficient time and good planning. But the reality is that future retirees will have to save more during their working years than prior generations, simply because they will depend on their savings for longer. Coming to terms with this new reality is the first step to building a successful plan.
For younger workers, retirement success will require committing to a disciplined savings strategy as soon as possible. It entails getting real about how much they need to save, how much investment risk they will require, at what age they should plan to retire, and what kind of retirement they will reasonably be able to afford.
For older workers and current retirees, it’s imperative to assess their current investment portfolio and the expected income streams from pensions and social security to determine if their current lifestyle is sustainable over the long term. Understanding the amount they must withdraw from assets each year, and how this will be impacted by inflation over time will help guide how their portfolio should be invested. Gone are the days when retirees can simply live off of the dividends and interest from their investments, and most people will need to maintain higher allocations to riskier assets like stocks for longer to give them a greater chance of sufficient returns.
Living longer is a wonderful opportunity, and it need not result in a retirement marked by financial anxiety. As Emerson said, “fear always springs from ignorance.” Getting educated on what funding is required to successfully fund your golden years is the best anecdote to this fear. And working with a competent financial advisor to develop and implement a retirement strategy can dramatically improve your odds of success.
 U.S. Social Security Administration, National Vital Statistics Reports, 2004.
 The Brookings Institution, Key Findings On The Growing Gap In Life Expectancy Between Rich And Poor, 2015.
 Allianz Life Insurance Company survey, 2010.
 Employee Benefit Research Institute (EBRI), 2016 Retirement Confidence Survey, March 22, 2016.