Could Longer Life Expectancy Leave You Without Enough To Retire?

How long will I live after I retire? Will I have enough money to retire if I live 30 or 40 more years?  These are key questions when calculating how much you need to save in order to retire comfortably and not outlive your retirement income.

Of course, no one knows for sure how long he or she can expect to live, although there are a few ways to make a calculated guess. The essential thing is to save enough to last until the end of your life so you won’t run out of money before you run out of time.

Planning for Retirement

When calculating how much you will need for retirement, your life expectancy is just one of the factors you need to consider, but it is a very important one. In the past, it seemed safe to assume that 20 years was an average retirement span, assuming retirement at age 65. Now, however, more and more people are living well into their 90s and even past the century mark due to healthier lifestyles and medical advances.

If you expect to live just 20 years after retirement, you can safely plan to draw from the principal amount in your retirement savings account. It is safer to assume, however, that 30 or 40 years is closer to the mark so you should plan to have enough socked away to allow you to live on the income from your retirement accounts without dipping into the principal.

Of course, most of us would like to look forward to a long, happy life but it does take some additional planning. You can take advantage of free retirement calculators available on the web to help you calculate the amount you’ll need to maintain your chosen lifestyle until the end of your life. 

How Do I Determine My Life Expectancy?

The fact is, life expectancy tables used by life insurance companies and traditional financial advisors are good as far as they go, but can be dangerously misleading for an individual. Your lifespan is not a statistical event and cannot be planned that way. You might live much longer than statistical averages expect – or much less. Nobody can possibly know regardless of what any life expectancy table tells you.

What you do know is life expectancy has changed dramatically over the last century, growing from 50 to 80 years during the 20th century. Additionally, new medical advances increase the general life expectancy of the population dramatically each year. Something that would have killed you just a few years ago may be survivable today.

You can use a life expectancy calculator to attempt to predict your approximate life span based on your family history, lifestyle, personality type and career choice, but in the end it is still a guess. Nobody ever really knows, and you must plan your retirement accordingly. 

Look at Your Family History

The most common approach to dealing with life expectancy issues in retirement planning is to base your assumptions on family history. If both sets of grandparents lived well into their 90s, chances are good you can plan on at least 30 retirement years assuming you retire at age 65. If your parents both died young or left you a legacy of diabetes or heart disease, you will want to take a good look at your own lifestyle to increase your chances of living to a ripe old age.

However, always remember that if you underestimate life expectancy it will cause you to also miscalculate how much money you’ll need to last through your retirement years. You could end up running out of money when you need it most. How do you prevent that from happening? 

Plan On a Long Retirement

Unless you have good reason to believe that your life will be cut short, the best strategy is to assume that you will live to a ripe old age and plan accordingly. The worst that can happen is that your heirs will benefit from your foresight. The best part is that you will be able to live worry-free no matter how long that actually is.

When you accept the reality of a 30 or 40-year retirement you also accept the reality of spending little or no principal from savings. The amortization period of a 40 year retirement is so long you really can’t live off your actual savings, but must limit yourself to just the income from savings. This is critical and cannot be overstated when looking at a long retirement.

Shorter retirements such as 20 years allow you to spend some principal from savings to pay for living expenses. Longer retirements reaching up to 40 years require a nearly perpetual income stream.  

 Not only that, you will also need to know how to invest your money in order to keep up with inflation and still maintain your chosen lifestyle. Even small rates of inflation over long periods such as 40 years can cause astonishing damage to the purchasing power of your savings.

Pay Off Your Mortgage

One strategy retirees can use to offset the danger of an unexpectedly long lifespan is to pay off the mortgage before you retire. Not only will this reduce your expenses during retirement, but it will provide you with a valuable asset to sell if you need to, or from which to draw funds via a reverse mortgage.

For example, you might budget your retirement savings to last until you reach age 90 while living in your mortgage free home. If you are blessed with good health and live beyond 90 then you can harvest the home equity which likely grew with inflation to support your remaining years.    

Enjoy Your Golden Years

The bottom line is, today’s longer life expectancy means more retirement years in which to enjoy the fruits of your labors. The key is to plan your retirement finances to support this increasing longevity so you don’t end up running out of money before you run out of years. By assuming a longer lifespan when planning for retirement, you can ensure that your golden years will be truly golden instead of fraught with worry.

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