Assessing Affordability of Increasing Life Expectancy

Advances in medical science usually have tangible benefits with an obvious one being increases in average life expectancy.

Data confirm that scenario is playing out. Since the World War II era, the average life expectancy in the U.S. is up 15 years, according to the Social Security Administration. Obviously, that’s positive progress, but it brings up another familiar issue: Concerns about outliving retirement savings.

Typically, a conversation about total life expectancy in the mainstream media focuses on the overall number, but it’s a different ballgame in the financial advisory business. In a numbers-driven industry, 65 – believed to be the average retirement age – is what’s focused on in life expectancy terms. As in for how much longer after 65 can someone live and does that person have the financial resources to cover a surprisingly long post-retirement life?

This is where things get interesting. It’s not just overall life expectancy that’s increasing. The post-65 figure is soaring as well with data suggesting it’s now close to 20 years, up from 13 years. Seven years is a big jump and one that introduces a variety of questions and potential burdens into the retirement planning equation.

Examining How Workers Arrive at Retirement

While the era of workers staying  at the same company for two or three decades and being treated to a plaque or watch upon retirement is long gone, realizing how many folks arrive at retirement is integral in planning for long life expectancies.

These days, early retirement is all the rage, but in life expectancy terms, how some workers arrive at early retirement isn’t always a positive.

“In reality, though, there are many different drivers of early retirement. Best case scenario, a worker may retire early because they want to and because they know they can afford to support their spending needs for a longer period of time,” according to BlackRock research. “Sadly, this is not the case for many Americans, however. In fact, in a 2019 survey from EBRI and Greenwald & Associates, over 70% of workers cited health reasons or corporate downsizing as the biggest contributor to early retirement.”

Another 22% of workers retire early because either their skills become obsolete or because they need to care for an ill family member. The stark reality is just a third of those in workforce leave early because they have the financial resources to do so.

Bolstering Preparation

The saying “an ounce of prevention is worth a pound of cure” is relevant in the longer life expectancy conversation, particularly because since we don’t have crystal balls and don’t know exactly for how long we’ll live after the age of 65.

Fortunately, there are some practical steps that can be taken today to shore up preparation for longer life expectancies. Those include delaying taking Social Security or, for younger workers, increasing contributions to retirement plans and not departing equities simply because of a bear market.

“If you are early- or mid-career, it is all about savings, time, and growth. Save more and stay invested in a diversified portfolio. Time and compounding are on your side. If you have access to a corporate 401(k)-type plan, make sure you are maximizing your savings rate to hit your company match,” concludes BlackRock. “For those nearing or in retirement, you may be trying to understand how to spend, but not overspend, your nest egg.”

Related: Talking to Older Clients About Ongoing IRA Contributions