How Retirees Can Tackle Longevity Risk
Ensuring a steady paycheck for your lifetime after you retire is not the same as it was for your parents. So much has changed requiring you to adapt to the new paradigm. Here is what you need to know.
![Woman doing yoga king dancer pose on beach](https://cdn.mos.cms.futurecdn.net/hYyEEnjJDkCax5r3SeR9cQ-415-80.jpg)
Medical advances and better awareness of nutrition and fitness are helping us all to live longer, healthier lives. This is, indeed, great news. But comes with an important caveat: Longevity has become the biggest risk when you are planning for retirement.
So, how do you manage this longevity risk and ensure you do not outlive what you saved for retirement?
That, indeed, is a million-dollar question, sure to be on minds of many. While the best recommendation is to seek professional advice, here are three ways that could help.
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Have a realistic expectation of how long you might live
Recently, I was talking to a 50-year-old friend about retirement planning. I asked her how long she expects to live. She was so ready with the answer: 85.6 years. When I followed up how she knew so precisely, she said 85.6 is her life expectancy according to this calculator from the Social Security website.
Here is what is wrong with the expectation. The calculator gave her an “average” life expectancy for a 50-year-old female, not a realistic expectation of how long my friend might actually live. Put it another way, if my friend planned her retirement funds based on these expectancy numbers, she has a 50% probability to outlive her savings. Not a financially secure way to plan for retirement!
So, what are the alternatives? Here are a couple of options.
One option is to make your best judgment of your life expectancy projection based on your health, family history, etc. After all, no one knows your situation better than yourself! Otherwise, use tools such as the livingto100 calculator, which takes your ethnicity, family history, health habits, etc., into consideration and generates a more customized life expectancy for you.
In either case, the more accurate your life expectancy projection, the more accurate your retirement plan will be, and the less likely you will outlive your assets!
2. Maximize Social Security benefits
If you anticipate an extended retirement period and are afraid you could outlive what you saved, the best way to protect is: 1) to have income sources that last for however long you live, 2) to ensure the income source is protected against inflation.
Social Security as a retirement income source fits this paradigm perfectly – the benefits are for life for you and your surviving spouse, and the benefits are adjusted for inflation each year.
On top of this, Social Security offers you a way to increase your payout 8% each year you postpone drawing benefits. For example, if your full retirement age (aka FRA) is 67, and you postpone drawing benefits until 70, you have a guaranteed increase of 24% of your benefits. Yes, permanently – for the rest of your life – for however long you live! Moreover, if you die, your surviving spouse is eligible to receive the increased benefit as well - for her or his life.
So, putting aside the concerns that the system could go under, if your focus is to hedge against longevity, maximizing Social Security is an excellent way to do it.
3. Consider gradually phasing into retirement
Retirement planning in the 21st century is not an all-or-nothing proposition. If you expect to live till 100, and if you fully retire at 65, you’d end up having 35 years of retirement! That is a long period of spending while not earning. Not ideal for your financial well-being or your personal well-being!
So, here is something to consider: Phase into retirement gradually. In other words, do not turn on the full-stop retirement switch yet. See if you can scale back and work fewer hours in your current job. Alternatively, consider working part-time at a lower-stress job. Or pick up consulting work. Or be your own boss and start a business, as I did in my late 40s.
So, what do you think? Does this make sense? Are you ready to face the modern-day retirement planning challenges? If so, hope this article gave you some food for thought. For a customized solution, please consult with your financial adviser. Good luck!
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published