When my husband and I meet with our financial advisor, we often engage in a familiar discussion: predicting how long we'll live. The common conclusion? Longer than anticipated.
In the last thirty years, life expectancy for men has increased from 70 to 79, while for women, it's risen from 77 to 83. Research indicates that a 65-year-old today can expect to live until about 84. Remarkably, half of those reaching 65 will surpass that age, with one in four living past 90 and one in ten reaching 95. The population of centenarians has soared by 2,200% since 1950.
Despite some fluctuations, trends in longevity continue to rise. A notable Time Magazine cover from February 2015 features a baby with the headline suggesting this child could live to 142. This optimism stems from advancements in curing diseases and tech innovations targeting longevity.
Is this encouraging? When I pose this question during talks, the audience typically responds with nervous laughter. The thought of living an extra decade or two without adequate health or financial resources can be overwhelming.
In my book, AgeProof: Living Longer Without Running Out of Money or Breaking a Hip, co-authored with Dr. Michael Roizen, we address the intertwined nature of health and finances. To thrive in retirement, it's essential to balance both, ensuring you have sufficient funds for expenses like Medicare premiums and monthly bills. Research shows that having a consistent source of protected income throughout retirement can alleviate financial concerns.
We have three main sources of guaranteed lifetime income: Social Security, pensions (available to only 17% of individuals today), and annuities. Social Security typically covers about 40% of pre-retirement income, leaving a significant gap. A study reveals that 74% of people with a pension or annuity alongside Social Security feel confident their retirement savings will last, compared to just 33% of those without.
Evaluating potential risks during retirement can help you decide if securing additional lifelong income is necessary. Here are four critical risks to consider:
- Healthcare Costs. Fidelity Investments has tracked the expenses a 65-year-old couple will face for healthcare not covered by Medicare over the past 16 years. The latest estimate stands at $280,000, averaging over $5,000 per person annually. Many retirees underestimate this cost, as Medicare covers only a portion of healthcare expenses, including premiums.
- Long-Term Care Costs. The $280,000 estimate excludes long-term care expenses, which Medicare only partially covers for the first 100 days. While the chances of needing extensive long-term care are low (only 2% will incur significant expenses), being unprepared can lead to financial strain.
- Longevity Risk. Living longer means needing more funds to sustain a comfortable lifestyle. Experts often recommend purchasing a deferred income annuity, which allows you to invest a sum of money now and receive payments later, providing a steady income stream when needed. This simple financial product has yet to gain widespread acceptance, but it deserves consideration.
- Market Risk. With the shift from pensions to 401(k)s, many individuals have their savings in the market. Financial advisors stress the importance of accumulating savings for retirement, but understanding monthly income needs is equally crucial. Consulting with a financial advisor can help clarify how to manage your funds effectively.
To learn more, visit www.RetireYourRisk.org.
