Can your financial plan stand the test of time? It may need to last longer than you think.
Since 1950, life expectancies at birth have ticked upward at a rate of roughly two years per decade, from an average 68.2 for a newborn in 1950 to 76.8 for one in 2000, according to the Centers for Disease Control. But those averages can paint a misleading picture: They factor in people who will die at younger ages, which drags down the number.
In contrast, the Social Security Administration's life expectancy calculator estimates that, on average, a man turning age 65 today can expect to live until age 84.3; a woman, to age 86.6.
"And those are just averages," the SSA notes. "About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95."
Celebrating such milestone birthdays for older relatives spurred Holly Wolf, 56, and her husband, Gary, 60, to reassess their retirement plans.
The Fleetwood, Pennsylvania, couple can count on one hand the number of relatives in the preceding two generations who have passed away younger than 80. Many of the rest of the couple's relatives lived into their high 80s or 90s. Holly's father is now 92, and Gary has a great-aunt who is still very active at age 99.
"We saw, we've got a lot of people who are living long," said Holly Wolf. "We can't use the number of living to 80, because they've all outstripped that."
More consumers should be taking that kind of notice.
People tend to underestimate how long they might live: 43 percent of retirees and 38 percent of pre-retirees fell short by at least five years when asked to gauge the average life expectancy for someone of their age and gender, according to a 2011 survey from the Society of Actuaries.
The SOA surveyed 800 retirees and 800 pre-retirees, ranging in age from 45 to 80.
Asked about their own life expectancy, only 31 percent of retirees estimated they would live two or more years beyond the average for someone their age.
That "longevity bonus" is both benefit and challenge. According to surveys, outliving your savings in retirement is a significant fear and even a fate worse than death. But it's an issue people aren't sure how to plan around.
Only one third of consumers know how long their assets would last in retirement — it's the risk they were least prepared for, according to a 2017 report from three actuarial associations. Half had some plan for living longer than expected, while 55 percent had planned for chronic health problems in retirement.
(Longevity doesn't always mean extra healthy years, and the latest estimates from Fidelity anticipate even a healthy couple could spend $275,000 on routine care in retirement.)
Here's how to rise to the challenge:
If nothing is certain but death and taxes, the timing of the latter at least is much easier to anticipate. Getting a sense of where your life expectancy might fall compared to the average is largely guesswork — and there's no guarantee.
Many predictors for longevity and risk factors for health problems are under your control; others aren't, said Jeanne Y. Wei, a medical doctor and the executive director of the Donald W. Reynolds Institute on Aging at University of Arkansas for Medical Sciences (UAMS).
"The best thing would have been if we could have chosen our parents wisely," she said, with relatives living with good health into their 100s.
Family histories of cardiovascular problems, cancer, diabetes and dementia are the big four risk factors to monitor, said Wei, who is also chairman of the department of geriatrics at UAMS.
And it's worth noting the prevalence of long-lived relatives. But consumers should also keep in mind that conditions contributing to an older relative's early death are likely to be more treatable now, or avoidable if we make different choices (say, not smoking or by being more active).
"If either of your parents lived to 75, your chances of making it to 95 are excellent," said, Wei, who cautioned: "That's a predictor. It doesn't have to be true."
Your own health habits — especially in terms of diet, weight, activity (or lack thereof) — and choices around smoking, drinking and drug use, are arguably even more important predictors, said certified financial planner Carolyn McClanahan, who is also a medical doctor. She is a co-founder of Whealthcare Planning, which helps people plan for the finances of aging.
"If you're a big partier, a smoker and you're overweight, that's not going to help you," said McClanahan, who is also director of financial planning for Life Planning Partners in Jacksonville, Florida.
There is some opportunity to turn around your habits in middle age. And researchers have found that conscientiousness is the personality trait that is the most strongly associated with longevity, said Wei.
"If we own our own health, we're going to do much better," she said. "We make so many decisions each day. We can choose to make it healthy, or not."
For a quick gut check, there are plenty of longevity calculators like the Actuaries Longevity Illustrator (from the SOA and the American Academy of Actuaries) and Living to 100, that aim to gauge the likelihood of you reaching certain ages and provide financial and health recommendations. Those can provide a launching point for further conversations with your doctors and financial advisor.
Get a trusted team in place
Finding the right financial advisor, accountant and attorney to work with on your financial documents and plan serves you well throughout your life — and especially as you age. Not only can they help you navigate complex retirement decisions like when to claim Social Security and what's an appropriate rate to tap resources, but they can also be a key resource in heading off the growing problems of elder fraud and elder financial abuse.
"I've been on this agenda for a number of years now, that we need to quit talking about retirement planning and start talking about planning for when you can no longer work," McClanahan said. "Retirement was not intended to last for 30 or 40 years."
One of the best things someone anticipating longevity can do is to rethink at what age they leave the workforce, she said.
"Every year you work is more financial security," McClanahan said.
Staying in the workforce longer triggers numerous financial advantages. It lets you keep generating income (reducing or eliminating the need to pull from savings), and offers more opportunities to add to retirement savings, she said.
Working longer can also help you delay claiming Social Security, boosting its value — especially for people whose late-life work replaces a zero-income year in the calculation. That valuable source of income can buoy you in later years, as you spend down other savings.
Working and volunteering also have benefits for healthy longevity, Wei said. They tick off several boxes — including a positive, purpose-driven outlook and social interaction — that research has found helps maintain cognitive function.
"Most of us look forward to retirement, thinking we're going to get to do everything we want to do," she said — but notes that not all retired individuals are happier. "Sometimes it's good to keep working."
It's a tactic plenty of people are already considering: Only a quarter of employees say they do not plan to work in retirement, according to a 2016 Transamerica Center for Retirement Studies report. (That doesn't mean those workers are staying in the same job, or keeping the same full-time hours.)
But basing your longevity plan solely on working longer isn't a solid bet, either. Nearly half of retirees report leaving the workforce earlier than planned, according to the 2017 Retirement Confidence Survey from the Employee Benefit Research Institute. Many cite problems like poor health, company downsizing or the need to serve as caregiver for a family member.
Originally, Wolf and her husband both planned to retire at age 60. But now, she said, they're rethinking that timeline — in part because they want to keep their financial plans on track, but also because they both enjoy their work. (She's currently in marketing for an orthotics company; he's a self-employed carpenter.)
The new plan: At some point, scale back to take on projects and hours of their own choosing, rather than schedule a hard stop.
"I think, what am I going to do if I retire?" she said. "We want to travel, but I'm not sure we'd be traveling 50 weeks a year."
Revisit investment strategies
"To a 20-year-old, what does it mean that you might live to 100? Save more," said Kai Stinchcombe, co-founder and CEO at True Link Financial, which offers financial planning and investment services for retirees. "For somebody at 70 … it has some very specific ramifications."
To help extend your savings at retirement over a longer time horizon, work with an advisor to assess both your investment allocation and your draw-down strategy in relation to the number of years you expect to live, he said.
The old rule of basing stock asset allocation on a formula of "100 minus your age" — leading to, say, a 40/60 stocks/bonds split if you retire at 60 — is outdated. If you have 30 years in retirement, a "safe" strategy may not grow your assets enough to keep pace or outpace inflation, which could lead to struggles down the line to maintain your standard of living or manage a big medical bill, Stinchcombe said.
"Money you're not going to touch for 20 years should not be in CDs," he said.
Used with caution, an annuity can also provide protection against longevity risk. For example, Stinchcombe said, buying a deferred annuity in your 60s that kicks in at 80 or 85 may use up less capital than holding back savings to cover those later years. There's an obvious risk — if you die before the benefit kicks in, that money is lost.
"If you're setting aside assets for age 85… you might be alive then or you might not, frankly," he said.
Decisions you make about how and where you'll spend your retirement add up. That's especially true on the housing front, Stinchcombe said — both in terms of geographic variations in costs of living, and choices like the type and size of your residence.
"What feels like a small decision can have a big impact," Stinchcombe said.
Wolf looked at her extended retirement horizon in terms of extra expenses and services. For example, she said, if a new roof lasts 20 to 30 years, living until 90 instead of 80 means budgeting for one new roof at age 60 won't cut it; if they tend to keep cars for 10 years, their retirement might entail an extra purchase.
Although the couple does plan to downsize to a smaller home at some point, they may need to factor extra help into the budget for things like lawn care or housekeeping. That number crunching came from talking to other retirees and observing what aging relatives needed.
"Talk to people who retired, and say, what expenses did you miss? What didn't you plan for?" Wolf said.
In particular, think about advance medical directives and powers of attorney and guardians to direct financial and health matters, said attorney Marve Ann M. Alaimo, a partner at Porter Wright Morris & Arthur LLP in Naples, Florida.
Those documents are instrumental in communicating what you'd like to have happen (or not) if there comes a point where you're incapacitated.
"A lot of people don't want to accept the fact that they could get in that serious car accident, or face a significant illness that keeps them alive but not in a good cognitive state," Alaimo said. "Just like people tend to put off estate planning, even more so, they tend to put off incapacity planning."
But prevalence of chronic conditions such as hypertension, coronary heart disease and diabetes often rises with age. In 2014, 46 percent of people age 65 and older reported having two or three such conditions, according to CDC data, versus 26.6 percent of people age 45 to 64, and 6.3 percent of people age 18 to 44. Risk for certain traumatic events, including strokes and aneurysms, often also increases with age.
Make sure your financial team and family advocates know where key documents are kept, said attorney John J. Scroggin, a partner with Roswell, Georgia-based law firm Scroggin & Co.
One of Scroggin's clients had a $1 million life insurance policy, but didn't document it among his assets. His adult children didn't find out about it until their father had been in a nursing home for a year after having a stroke, Scroggin said — well after they had stopped his mail and closed his bank accounts. With the premiums unpaid, the policy was no longer in force.
Life insurance is another financial to-do that's best tackled earlier, McClanahan said — it's typically something clients start navigating in their 20s and 30s. You'll see bigger gaps in insurance rates as you age, especially if you now have additional risk factors. (Keep in mind, medical professionals recommend more routine health screenings for older adults, such as mammograms and colonoscopies from age 50.)
… And revise plans accordingly
If you receive a diagnosis or other health news that could shift your needs or longevity, think of that as a red flag, Scroggin said. It's time to review your documents and financial plan, and update them accordingly.
You may need to revise more cautiously if that health news involves a diagnosis of dementia or another condition associated with cognitive decline, said Alaimo. That could make others more suspicious of plans you've put together, especially if they involve controversial moves like cutting someone out of the will, or making unequal bequests.
"If your family becomes aware you have those diagnoses, even if you think you're totally capable, those other people don't," she said. "You need to be aware that other people will impute cognitive disability to your decisions."
Integrated, methodical planning can help ensure your documents stand up to such scrutiny, Alaimo said — don't rush to make changes, and communicate your wishes clearly and consistently to all the pros on your financial team. You could also ask for statements from your medical professionals, noting your capacity at the time you're revising your plans.
(This article was written with the support of a journalism fellowship from New America Media, the Gerontological Society of America and the Retirement Research Foundation.)