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The Impact of Longevity on Retirement Planning
The Impact of Longevity on Retirement Planning
In the early 20th century, life expectancy was relatively short. In 1900, the average life expectancy in the United States was about 47 years. Fast forward to the year 2000, and life expectancy had increased dramatically to around 77 years.
This amazing increase in life expectancy is attributed to advances in medical technology, better healthcare, and improved living conditions.
When the Social Security system was designed in the 1930s, it was based on the assumption that people would work until age 62 and likely not live much past 65 or 70. However, with today's continued medical advancements and healthier lifestyles, many of us can expect to live much longer than previous generations.
Financial Implications of Longer Life Expectancy
The implications of increased longevity are profound and far-reaching. Planning for a retirement of 5 or 10 years is vastly different from planning for a retirement that could last 25, 30 years, or more. This new reality necessitates a shift in how we approach retirement planning and financial security. The concept of working until age 65 and then retiring to only leisure is being questioned by many of today’s Baby Boomers. With longer life expectancies, the notion of being largely inactive for decades is not very appealing. More of today’s Boomers are choosing to be far more active and engaged than previous generations whether by working into their late 60’s or 70’s, volunteerism, pursuing different interests or part-time work.
Financial Planning Strategies
To ensure financial stability throughout a longer retirement, individuals will need to adopt different financial planning strategies than earlier generations. Here are a few considerations:
- Start Early: Start saving for retirement as early as possible and maximize what you are saving to take advantage of compound interest. Increasing your savings rate can significantly impact your financial security in later years.
- Tilt Investments Towards Growth: Traditional wisdom said to get more conservative by reducing exposure to stocks and increasing bonds substantially by the time you retired. With increased life expectancies extending the retirement years so much, that logic may no longer apply in the same way.
- Plan for Healthcare Costs: Healthcare expenses traditionally increase with age and that trend is still in place. You’ll need to educate yourself in order to select the health insurance coverage that best meets your needs. You may also need long-term care insurance to cover home health care or nursing home needs late in life.
- Consider Delaying Social Security: Delaying the start of Social Security benefits can result in an 8% increase in payments for each year you delay. If you are married or divorced, you should consider how best for each of you to take your benefits. This is something a financial advisor can help with.
The Importance of Purpose and Engagement
Beyond financial considerations, it's crucial to plan for how you will spend your time in retirement. Keeping active and exercising regularly is a commitment that most strive for in retirement. By all accounts, regular exercise is one of the most important factors in retaining good health in your later years. Maintaining a sense of purpose and staying socially connected can greatly enhance your quality of life. Many retirees find fulfillment in part-time work, volunteering, or engaging in activities with others that they are passionate about.
Conclusion
As we continue to experience increases in life expectancy, it's essential to rethink traditional retirement models and embrace a new approach to financial planning and lifestyle choices. By taking proactive steps to secure financial stability and staying actively engaged, today's workers can look forward to a fulfilling and dynamic retirement that defies outdated stereotypes.
Investment advice offered through OneDigital Investment Advisors LLC.
This is for informational purposes only and should not be interpreted as specific investment advice. Investors should make investment decisions based on their unique investment objectives and financial situation.
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