The Economics of Living Longer

by Donna Wright:

Healthy lifestyles and healthcare advancements have led to longer lifespans and the number of Americans living to 100 years old continues to increase. Will your money last that long? 

Living to 100 Can Greatly Impact Your Finances 

While living to 100 years old sounds good, that may have a huge impact on your financial planning and management. You see, most people prepare financially for the future based on the former standard retirement age of 65. However, a longer life means that a person who retires at 65 could potentially need to live on those retirement funds for more than three decades past retirement age. In other words, if not planned properly, your money can run out. 

There are ways to financially prepare for a longer life, ensuring that your retirement savings last longer. However, you need to be proactive by imagining a life lived longer than perhaps once anticipated, meaning decades longer than past generations. Without efficient planning, you could be caught outliving your nest egg savings. 

Whether you’re already retired, approaching retirement, or still have years of work ahead of you, it’s always a good time to start creating or reviewing your longevity plan to ensure you are financially secure during retirement, even if you live to be 100. Let’s look at longevity planning. 

What is Longevity Planning? 

Longevity planning is the financial process of preparing for a longer lifespan. It involves the creation of financial strategies that match your lifestyle for the duration of your life. The plan begins with an assessment of your current financial situation, a consultation with a financial advisor, setting long term goals, and concluding with a customized plan based on budget, income, healthcare, investments, and inflation. 

Financial security is more than just numbers. Create a cohesive plan now to help provide peace of mind about your financial future during retirement years. Longevity planning is certainly not a “one-size-fits-all” plan but instead customized to ensure a steady financial foundation for the decades ahead. 

12 Strategies to Build and Preserve Your Finances For Living Longer 

Now that you understand the importance of longevity planning, let’s move on to discuss some strategies to help you make that plan a success. Remember, whatever stage of your career that you’re currently in, this topic demands attention. Here are 12 ways to help your finances benefit from a longer lifespan.  

<1> Understand Your Budget 

Before you can plan for the future, you need to consider the overall picture of your current finances. Understanding your budget starts with calculating your net income. Take that amount and subtract your expenses. Evaluate your spending habits and based on the remaining cash flow, set goals for meeting a specific budget and determine how much to save or invest. 

Keep in mind, as you get closer to retirement age, you don’t want to spend money frivolously. Instead curb your spending habits to save money to meet longevity needs.  

<2> Boost Savings to Make Your Money Last 

Now that you’ve evaluated your budget and adjusted your spending, you’ll want to save as much money as possible. You must consider that a long retirement is going to require substantial cash flow. If you start saving early, you’ll live a more comfortable financial life later. 

<3> Rethink Retirement Planning 

And speaking of retiring, living to 100 years old should have you reconsidering an early retirement. As mentioned, if you retire at 65 years old and live until 100, that would be 35 years of retirement without a paycheck. Choosing to work longer, even for an additional five years, can help delay taking money from your retirement fund or collecting Social Security benefits. 

<4> Optimize Social Security Benefits 

Did you know that if you wait until age 70 to claim Social Security benefits, you can increase your monthly benefits payment by 8%? That extra money can really add up and make a difference with a longer lifespan up to and beyond 100 years old. So, by waiting until the specified full retirement age, you'll receive your full Social Security benefit that will continue for your full life. 

<5> Diversify Investments 

With a longer life expectancy, you’ll want to seek the advice of a financial advisor to ensure that your assets continue to grow even after you retire. The longer you live, the more resources you may require for living, medical, and long-term care expenses. A financial planner can suggest the ideal investment portfolio including the right retirement accounts such as a traditional IRA, 401K, or a Roth IRA. You will need to balance risk and growth potential while providing flexibility to adapt to unexpected circumstances. 

<6> Create Income During Retirement 

While Social Security is a part of your retirement income, there may be a deficit when it comes to paying your monthly expenses. Add that fact to living a longer life, and the risk of running out of retirement money becomes a serious concern. If you’re already retired, you can look into working part time or as a consultant for added income that falls in the acceptable amount specified in the Social Security guidelines. If you’re early enough in your career, you can invest in deferred annuities that allow you to accumulate money while saving for retirement. 

<7> Plan Your Healthcare Needs 

It’s important to include healthcare expenses in your longevity plan. An extended lifespan and the risk of increased healthcare costs could require additional financial measures throughout retirement. Consider potential healthcare costs and attain adequate insurance to cover long-term expenses. Also consider taking advantage of health savings accounts (HSA) to help you afford future healthcare costs. 

Keep in mind, while Medicare helps with healthcare expenses in retirement, it doesn’t cover all care scenarios so you must consider the possibilities and plan ahead. In later years of retirement, one might require assisted living whether at home or in a facility. Elder care may be necessary for daily living tasks like walking, grooming, eating, shopping, and transportation.  

<8> Consider the Importance of Long-Term Care 

What is long-term care? It’s care is a variety of services to aid a person’s health or personal care needs when they can no longer perform everyday tasks on their own. With the potential of living until 100 years old, you want to consider purchasing long-term care insurance. Long-term care insurance helps to pay expenses for assisted living at home, at a senior living day care, or moving to a nursing care facility. 

The cost of long-term care insurance varies depending on age, health conditions, and more. Heed the warning that you should select long-term care insurance earlier in life at a more affordable rate.  

<9> Protect Against Inflation 

The prospect of living until 100 years old makes inflation protection an important consideration. The cost of living and medical expenses will continue to rise throughout your retirement years so you must prepare and invest accordingly to maintain your finances. Your financial advisor can help you calculate an inflation adjustment to your financial goals. 

If you’re on a fixed income later in retirement, inflation may significantly reduce your financial security. However, with an efficient investment portfolio based on inflation forecasting, you can stay on pace to keep up with higher costs. 

A Plan for a Long Future Should Start Now 

Living to 100 years old is much more common these days and something we all need to plan for. And while it’s great to plan early, you’ll need to continually monitor your longevity plan and make adjustments accordingly.  

Whether you’re nearing retirement or still years away, with proper planning you can look forward to securing the necessary financial means to comfortably fund a longer life.