Three Consequences of Extended Longevity

Three Consequences of Extended Longevity

My 80-year old uncle used to laugh off warnings from family members about taking better care of himself. “After all,” he’d joke, “I can’t die young.” He ultimately passed away at age 85 from cancer but I’m sure would not have regretted the quality of the long life that he’d enjoyed. Excepting perhaps those of us dealing with severe chronic pain or other debilitating health problems, I’m sure we’d all opt for greater longevity given the choice. And we are in fact living longer. According to the Social Security Administration (SSA), only about half of men reaching adulthood in the late 1890s managed to survive until age 65 and beyond. For those becoming adults fifty years later (after World War II), almost three-quarters accomplished that feat. And today a male reaching age 65 can statistically expect to live until age 83. For women the numbers are even better. But there are downsides to living longer. Here are the ones I frequently encounter as a financial planner.

Outliving your savings. This is by far the greatest concern of most people approaching retirement age and is what makes a retirement plan so valuable. But any such plan has to make an assumption about your longevity. Using the SSA data above is not a good idea since that data represents only averages. Assuming you will pass away at age 83 ignores the fact that that half the population will exceed that age. A better approach is to use outlier probabilities. For example, based on mortality data from the Society of Actuaries, a 65 year-old man today has a 20% chance of reaching age 90, a 6% chance of reaching 95, and a 1% chance of making it to 100. For him, a plan terminating at age 95 is probably a good balance between the risk of outliving his money and the risk of over-limiting his spending and its consequent enjoyment during retirement. For a woman, the same chances are 32%, 13%, and 4% respectively. Her plan would need to end when she is age 98 in order to limit her longevity risk to the equivalent 6%.

Of course, there are many ways to deal with the risk of running out of money before you die even if you live longer than expected. In addition to constantly monitoring and adjusting your retirement plan and its associated investment strategy as you grow older in retirement, maximizing Social Security payments and including pensions or annuities in your investment portfolio will all provide some degree of continued income no matter how old you become.

Dealing with dementia. Although there are many health-related issues that can cause disability and require potentially costly support at any age, I can’t think of anything scarier than losing one’s personality or self-awareness. And the older you get, the more likely you will experience some form of dementia. The likelihood of occurrence for seniors over age 90 is an astounding 50%! This represents not only a huge financial risk but also a potential burden on adult children. It also suggests that in addition to having good caregivers lined up for help with basic living activities (just in case), you’ll also need a trusted financial planner to manage your investments and other financial needs if you no longer have the capacity to do it yourself.

Becoming a burden on your adult children. As people live longer, many will stay in their jobs longer, either through necessity or by choice. Younger adult children could face a tougher job market if a glut of older workers potentially limits the number of positions available. And as indicated above, your children may have to make career and/or other financial sacrifices in order to provide caregiving support to you.

Still, a long lifespan does not have to be something to fear. In the past retirement may have meant doing nothing but going fishing. Today, however, you can find a plethora of activity choices. There are home-based business you can start or join, many different types of travel opportunities, and even numerous ways to meet and join or to start social and other types of collaborative groups and organizations. And studies have shown that living a robust retirement lifestyle contributes to improved mental and physical wellbeing. Life may not begin at 80, as my uncle also used to say, but it certainly doesn’t have to end at that point either as long as you plan for and manage the risks.

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