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Longevity Risk and American Retirement

Longevity Risk: the risk that a man or woman may live long enough that all of the hard-earned funds they’ve set aside for retirement are used up, leaving them financially exhausted and impoverished at what is often the most physically and often mentally vulnerable point of their lives. And according to the new study “Living Longer Living Better” from the Wells Fargo Investment Institute, this risk is dramatically on the rise.

Five takeaway messages for future American retirees and current financial professionals include:

  1. Retirees Should Plan On Extended Lifespans

According to the report, by 2030 nearly one in five U.S. residents is expected to be 65 or older. And the average life expectancy of men and women is rising, currently 84.3 years and 86.6 years for 65 year old men and women respectively. Thus, it is prudent and advisable for retirement savers to plan for 20, 30, or even 40 years or retirement—significantly longer than the norm for generations before.

  1. Factor In High Medical Costs

Improved medical care is one major force behind these extended lifespan. However, it comes at a cost. Retirement age adults consume a disproportionately large amount of American Medical System’s resources, and the costs of even routine treatments are rising rapidly. To compensate for these increased costs individuals and households should prioritize health insurance (including vision and dental insurance, which are not covered by Medicare) and take preventative steps including weekly exercise, yearly flu shots, and not smoking.

  1. Plan for Minimal Public Funds

“Diminishing defined-benefit pension plans and the uncertain future of Social Security all pose challenges and risks for retirees,” the report states. In other words, funding from outside entities such as the government or employers should not be treated as a 100% reliable source of retirement income. Instead, retirees are urged to plan ahead and set aside enough income to support themselves from their own retirement accounts without external assistance—using any income that does come in to further shore up their accounts.

  1. Ready Contingency Plans

Saving early is generally easier than catching up later, due to the compounding power of investments. Workers who plan to leave the workforce early should make sure that they have enough set aside, and may want to consider delaying retirement to make catch-up contributions to their retirement accounts, downsizing, or seeking part-time income during retirement itself. The report also advocates keeping some savings invested in stocks in order to increase assets relative to the prices of goods and services.

  1. Consider Permanent Income

However, while potential returns from stocks are able to consistently outpace inflation, they do come with market risks which can result in account losses. If retirement savers are unwilling to take on this market risk, they may want to consider alternative options for long-term retirement income and security, including guaranteed income and security from an Annuity* or Indexed Universal Life Insurance**. However, participants should be educated beforehand so that they completely understand the details, limitations, and benefits of any retirement account or other financial policy.

http://www.thinkadvisor.com/2016/02/22/6-ways-to-prepare-for-a-long-retirement

https://saf.wellsfargoadvisors.com/emx/dctm/Research/wfii/wfii_reports/Investment_Strategy/living_longer.pdf

https://www.medicare.gov/coverage/eye-exams.html

https://www.medicare.gov/coverage/dental-services.html

Imeriti Financial Network (“IFN”) is a Field Marketing Organization business that recruits and/or recommends insurance agents to insurance carriers. IFN does not engage in the solicitation or sale of insurance products to end clients. The information contained within this blog is for general information purposes only and should not be construed as provide tax or legal advice or a recommendation or inducement to purchase an insurance product.

Any information, statistics, and opinions reported within this blog were obtained from sources believed to be reliable. However, IFN and/or the blog author do not guarantee or claim responsibility for the truth, accuracy, and reliability of any source, fact and/or statistic cited and may not necessarily agree with any opinions expressed by such sources.

** Guarantees are backed by the financial strength and claims paying ability of the issuing company.

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Disclaimer

The information contained herein is for general information purposes only. Imeriti, Inc. is not to be held responsible for the accuracy of this information. Neither Imeriti, Inc. nor its employees provide tax or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax adviser.

The information, statistics, and opinions reported herein are from sources believed to be reliable. However, Imeriti and the author of this blog do not guarantee the truth, accuracy, and reliability of any source, fact and/or statistic cited and no do necessarily agree with any opinions expressed by such sources.

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