What if you are healthy at 100? Will your retirement savings last that long?
We all know how important it is to create a retirement plan and save to ensure that we have enough to last through those Golden Years, but many people haven’t saved enough. Only one in four people aged 55 and over has more than $300,000 saved. Fortunately, most of our clients at Keen Wealth Advisors fall in that “one in four” category and have done a nice job saving for retirement.
A big reason most people don’t have enough saved is because they don’t realize just how much they’ll need to last in retirement. How can you accurately plan for something when you don’t have the answer to all the questions?
How much you need in retirement depends on how long you live, which none of us know the answer to. So how exactly can you ensure your retirement savings won’t run out if you live longer than expected?
Your Longevity Risk
In retirement planning, this risk of living longer than expected is known as a longevity risk. Today, males and females who are 65 today are expected to live to 84 and 86, respectively, but one in four will surpass the 90 year mark, and one in ten will reach 95. And people are continuing to live longer. If you’re in your 40s or 50s today, it’s not unrealistic to potentially plan for a 100th birthday.
Based on these statistics, you could be looking at a 30-year retirement, instead of 20. Ten years can financially make or break your living situation, so it’s important to plan for longevity risk and make adjustments that can guide you toward a financially stable retirement.
We know we can’t predict how long we live, which is why retirement planning can be complicated. Even doctors usually won’t offer their patients a predicted time frame because there are too many factors that can change your circumstances. This means you have to create a steady stream of retirement income for an unpredictable length of time. If you plan to live to age 80, you may live until 90 and you’ll need to determine how to stretch your savings to last an additional decade.
Planning for the Unknown
Smart retirement planning starts with having a realistic expectation of your life expectancy. You can start by using a life expectancy table and considering your personal and family health history. How long did your parents and grandparents live? How is your current health? How active are you?
Considering these factors can help you estimate a ballpark figure. Once you settle on a timeframe, you’ll want to factor in an additional 5 to 10 years as a buffer, and as a hedge for unexpected medical expenses, long-term care, and inflation.
You might want to take it a step further and try this living to 100 calculator. According to the website, “The calculator asks you 40 quick questions related to your health and family history, and takes about 10 minutes to complete.” When completed, you’ll receive personalized feedback and some ideas on what you can do to live longer.
The longer the planning horizon, the more resources you’ll need for retirement. The most obvious way to lower your longevity risk is by saving more before you retire. If you contribute to a 401(k), consider increasing that amount by 1% every quarter until you reach a new goal. You may also consider opening a Roth IRA and contributing the maximum $5,500 amount (or $6,500 if you’re age 50 or over) each year.
Another way to add years to your retirement savings is to delay claiming Social Security and find creative ways to earn an income in retirement.
Your Next Steps
While you may not be able to predict the future, you can create and update your plan over time to prepare for a long and fruitful retirement. At Keen Wealth Advisors, my team and I specialize in providing personalized retirement savings plans designed to help people thrive in retirement. If you have questions about incorporating your longevity risk into your retirement planning, we’d be happy to schedule an appointment to discuss your concerns. Call our office at (913) 624-9548 or email me at BKeen@KeenWealthAdvisors.com.
Bill Keen is a Chartered Retirement Planning Consultant® and independent financial advisor with more than 24 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.