Longevity risk is the possibility of living
longer than expected and having adequate income/assets for an extended period
of retirement. I recently attended a webinar that predicted future life
expectancy will increase due to medical technology advances such as CRISPR
(modifying DNA).
The webinar also noted that many older adults
no longer follow a linear lifeline (birth-school-work-retire-die) but, rather, a
cyclical lifeline. They reinvent themselves in later life, often with
additional education and new jobs or other meaningful pursuits. Lifelong
learning is a key factor.
The webinar further explained that the 3-legged
stool of retirement income sources (pension, Social Security, investment
earnings) is very wobbly. Fewer than 20% of employers provide pensions and the
Social Security trust fund is estimated to run out of money in 2033. At the point that reserves
are depleted, FICA tax income will be able to pay only about 77% of scheduled
benefits.
What to do? Below are seven financial planning
strategies for “the age of longevity”:
¨ Develop a Long-Term Care (LTC) Plan- Consider various options including
self-funding LTC expenses, moving to a continuing care retirement community,
and LTC insurance. Buy a LTC policy with comprehensive coverage (in-home,
assisted living, and nursing home).
¨ Optimize Social Security Benefits- Learn about various claiming strategies for
Social Security. Consider delaying benefits up through age 70 to increase
monthly payments if you are in good health, are financially secure, and expect
to live a longer life span.
¨ Plan for Health Care Costs-
Estimate health care expenses in retirement and work them into your budget.
Costs include Medicare premiums, deductibles, copayments and other
out-of-pocket expenses. Shop around for coverage during annual open enrollment
season.
¨ Stay Healthy- Invest time and money in maintaining good
health through proper nutrition, regular exercise, and preventive care (e.g.,
screening exams). Healthy habits can reduce health care costs and improve
quality of life in “old old” years (age 85+).
¨ Consider a Reverse Mortgage- Evaluate the option of a
reverse mortgage to tap into home equity for living expenses without having to
move. Be sure to understand the terms of the loan and downsides (e.g.,
relatively high fees and smaller inheritance for heirs) before proceeding.
¨ Explore Annuities- Consider purchasing low-expense
annuities to provide a steady stream of income in retirement. Compare different
types (fixed, variable, or indexed) to find the best fit for your financial
needs and investment risk tolerance.
¨ Get Advice as Needed- Consult with a financial
planner, tax professional, or estate planning attorney for guidance on
investing and tax-efficient asset withdrawal strategies.
This post provides
general personal finance or consumer decision-making information and does not
address all the variables that apply to an individual’s unique situation. It does
not endorse specific products or services and should not be construed as legal
or financial advice. If professional assistance is required, the services of a
competent professional should be sought.