Everyone hopes for a long and happy life, but did you know economists actually consider living too long to be a risk?
They even have a name for it, “longevity risk.”
It is the condition of living so long that you end up outliving your money.
Because no one knows for sure how long he or she (or a spouse) will live, the issue of life expectancy can complicate retirement planning. Think of it like trying to plan a dinner party without knowing how many guests are going to show up.
The good news is, with a few simple planning steps, most of the worries surrounding this issue can be solved.
Facts about the “risk” of living too long,
- People are living longer now than ever. Improvements in medical technology, disease prevention, treatment, and management have lead to longer and longer life spans.
- How long can a person live? The answer is really unknown. So far, the oldest living person on record was Jeanne Calment of Arles, France. Jeanne died in 1997 at the age of 122.
- What is the average life expectancy for U.S. retirees? If you are 65 today, average life expectancy is 84.3 for a man and 86.6 for a woman. Note…these are only averages, so half of the population will live even longer!
- Marriage is a factor. Married people retiring today have about a 50% chance that at least one member of the couple will live to age 92.
- Women are more at risk. Because women live substantially longer than men, they are much more likely to become impoverished in older ages.
- Your precise risk is unknown. An individual person’s exact longevity risk is difficult to determine because it is derived from a mix of factors including, available retirement funds, rates of return on future investments (or market losses), retirement spending rate, inflation, future medical expenses, family health history, and lifespan.
How to solve the problem of longevity risk?
The most important factor for overcoming longevity risk is having enough INCOME to pay your basic living expenses in retirement – especially guaranteed-for-life income that lasts no matter how you live and adjusts for inflation.
For most retirees, guaranteed life income comes from three major sources:
- Social Security
- A company (or government) pension
- Life annuities
Often, people end up combining several sources of income to achieve their retirement goals. The idea isn’t necessarily to have all of your income come from guaranteed sources, but enough to cover your basic living expenses and give you peace of mind. Studies show that retirees with more guaranteed income have less stress and more enjoyable retirements.
So what do you think?
Have you ever thought living too long could be a risk? Do you know of anyone who has outlived their money? What about the issue of women being more at risk? As a husband and a father, I do not want to leave the risk of my wife suffering poverty in very senior age to chance.
Feel free to email me comments or questions. You can also post comments below.