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How to Plan for a Longer Life
People are living longer, presenting a number of financial opportunities and challenges.
By David Foster
The phrase “50 is the new 30” is much more than a state of mind. People are living longer and more dynamic lives than ever before. This means planning for a longer retirement as well, including robust financial plans that will provide you with the resources to do all you want to do.
Life expectancies have been increasing for decades, but at such a slow rate that few have noticed just how much longer people are living. The real possibility of living to an advanced age, and the financial impact that could have, must now be a key consideration in financial decisions.
Consider that the remaining life expectancy for a 60-year-old man is to age 81 and to age 84 for a woman. As recently as 1970, life expectancy for a man was just 76 years old. That additional five years translates into a little different financial picture for retirement.
Here are some factors to consider when planning for a long and happy retirement.
A longer lifespan can have a large impact on how much money you need for your desired retirement lifestyle. A good first step is to consider where you are now, how much you would like to spend in retirement and what you need to get there.
To decide how much to contribute toward your retirement goals, you need to think about several factors. Consider:
- post-retirement expenses
- income from investments and/or continued employment
- Social Security benefits
- defined benefit plan income
- your desired income in retirement
- how many years you will need that income to last
For example, since 1970 the life expectancy of a 60-year-old male has increased 4.72 years. If your post‑retirement income goal is $100,000, the increased lifespan would result in needing an extra $472,000 of retirement assets.
Options to Consider
In planning for a longer retirement, you should also consider the following questions and discuss them with a financial advisor.
- If you haven’t yet retired, is your current contribution rate (given your age and how much you have already saved) enough to support an income for your expected lifespan – or longer?
- If you are close to retirement or already retired, what budget do you need to maintain, given the potential for a 30-plus year retirement?
- If you are considering reallocating your investment portfolio with a more conservative, fixed-income allocation when you retire, does the potential for a longer lifespan change the timing of that reallocation?
- If you are relying in part on an inheritance from family members, what impact would it have on your retirement plans if those family members live to an advanced age?
- With a longer lifespan, would delaying Social Security benefits be appropriate?
- If you worry that you will outlive your retirement assets, would allocating some of those assets to a lifetime annuity help to reduce the concern?
- Will your life insurance policy stop providing death benefit protection at a certain age? Review your policy to uncover if it matures at a certain age, only provides coverage through a certain age or is at risk of lapsing prematurely.
Caring for an Aging Parent
As lifespans increase, so does the risk of needing long-term medical care. The financial burden of your care as you age may fall upon your children, making it harder for them to reach their financial goals. Siblings also may disagree on the best way to provide care or how to divide the time and financial cost of that care. One option may be for family members to combine financial resources to provide long-term care insurance for their parents.
Or, if you have cash value life insurance and you no longer need the same amount of death benefit because, for instance, your children are financially independent or you have paid off your mortgage, you may want to consider using the cash value to supplement your income and cover your future long-term care. Another option may be to repurpose the cash values through what is known as a tax-free 1035 exchange to acquire long-term care protection. The cash values may also be exchanged tax-free for an immediate annuity to provide a lifetime income stream for you and your spouse.
Before making changes to your insurance, consider all of your options as well as the costs and tax consequences associated with the purchase of a new contract.
David Foster is a senior resident for the PNC Center for Financial Insight®
For more resources, visit PNC’s Retirement Planning Center »
David Foster is a senior resident for the PNC Center for Financial Insight®
According to the Pew Research Center, the number of centenarians worldwide grew from 95,000 in 1990 to more than 450,000 in 2015, with a projected 3.7 million by the year 2050. While living to age 100 may still be a statistical long shot, the likelihood has increased substantially and should be considered when planning for the future.
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Important Legal Disclosures & Information
1. Life Tables for the United States Social Security, Actuarial Study No. 120, Available at: https://www.ssa.gov/OACT/NOTES/as120/LifeTables_Tbl_10.html
2. "Life Tables for the United States Social Security, Actuarial Study No. 120, available at https://www.ssa.gov/OACT/NOTES/as120/LifeTables_Tbl_10.html
3. Life expectancy is only one of the many factors to consider in selecting an appropriate allocation of your investment portfolio.
4. IRC Section 1035
5. Pew Research Center, “World’s centenarian population projected to grow eightfold by 2050,” April 21, 2016, Available at: http://www.pewresearch.org/fact-tank/2016/04/21/worlds-centenarian-population-projected-to-grow-eightfold-by-2050/
These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions.
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