Many factors come into play when developing a financial plan for retirement. One of those is life expectancy. The number of years you live determines the amount of money you’ll need once you stop working. While there’s no way to know what age you’ll live to, it is a known fact that people now live longer than ever before.
Why Is Life Expectancy an Important Factor?
As people get older, they begin to put more thought into when they want to retire. However, few of them focus on how long their retirement will actually last. Once you stop working, you want to have enough money to enjoy life. So, you need to consider not just when you want to retire but also your life expectancy.
Say you decide to finally stop working at the age of 70. If you live to 100, you’ll need enough financial expenses for 30 years. If you retire at 70 but only live to 80, then you only have 10 years to cover. No one likes to think about death, especially their own, but it’s part of life and part of planning for retirement.
As mentioned, people now live longer. The primary reason for that is all the advances in medicine combined with enhanced safety options. Fifty years ago, someone diagnosed with cancer didn’t live long. Today, people beat cancer all the time and go on to enjoy full and healthy lives.
In recent years, many organizations have conducted studies about living longer. They all noted a steady incline. However, diseases and obesity continue to play a role in preventing some individuals from living as long as they should or could.
Statics on Living Longer
Historically, life expectancy from the 1950s to today has increased by about 1 percent annually. That means a baby born today in North America should easily live well into their late 70s or early 80s, barring some unknown factor. Data from these studies also show that if you make it to your mid-70s, there’s an excellent chance of you having another 10 years on Earth.
Consider this: If you’re 65, statistics show you should live another 20 years. However, if you hit age 75, that changes slightly, adding on two more years. Simply put, if you live to 75, you can anticipate making it to at least 87.
Now, compared to men, women live longer. That’s always been the case. Also, people of Hispanic origin typically outlive non-Hispanics. However, non-Hispanics usually live longer than African Americans. One of the more interesting discoveries is that the gap between racial groups has started to tighten.
Regardless, the biggest contributors to life expectancy include family history, lifestyle, and health. If you want to live as long as possible, even if diseases run in your family, live a healthy life. That means avoiding drinking and smoking, eating healthy foods, and exercising regularly.
Keep in mind that the numbers mentioned are nothing more than averages. For example, at 65, you could expect to live to 75, as stated. However, one in 20 individuals will live 30 years past 65, often longer. On the other hand, one in four individuals will live less than 10 years past 65.
What Does It All Mean?
All of this has to do with your retirement and coming up with a strategic plan to ensure you have enough money to live and enjoy your golden years. So, along with all the decisions you’ll make when building your financial portfolio, you need to factor in life expectancy.
To some degree, the length of your retirement dictates how much money you have. The best advice is that everyone should start putting money aside for retirement while still young. Investing in a 401(k), Roth IRA, or the stock market will make a huge difference by the time you’re ready to retire. In fact, investing in a tax-deferred retirement plan is the single best way to ensure you don’t run out of money when you are older.
You should also run various what-if scenarios on your life expectancy to see what would happen to your retirement plan if you live longer than you expect. You don’t want to be 90 years old, but without any money. You can run these types of scenarios in retirement software packages such as WealthTrace or in a simpler retirement calculator such as Vanguard’s Nest Egg Calculator.
You might be surprised what an impact living longer can have. Many people begin eating into their investment principal balance when they are in their 80s because their retirement income is no longer sufficient to cover their expenses. This is why it is very important that you have a handle on what your plan might look like if you live longer than you might expect.
Using A Financial Advisor
It’s never too late to save. Although you’ll need to get a little more creative as you age, you can still come up with a solution for a comfortable retirement at a later date. This is where a financial advisor can help. Sitting down with an expert, you’ll have a viable plan. Even if you’ve already invested money, it never hurts to talk with an expert. That individual has the expertise to guide you in the right direction financially.