It is no big surprise that almost all of us wonder how long we are going to live? Whether we will see our kids growing up or witness the trends of the next generation. Life expectancy directly affects retirement plans. And as Life expectancy in the US has risen drastically in the last century, there is an ever-standing question of how it will affect retirement plans. Well, fret not; in this article, we will discuss all the ways longevity affects your financial plans and how you can deal with the possibility of a longer lifespan in retirement.
How many times have you wondered, “Will I be able to see my legacy being carried on?” After all, who doesn’t want to cherish and share more loving memories in the lives of their friends and families? And honestly, while many would not agree to this, there are so many upsides to having a long and fulfilling life.
You will have a front-row seat to experience all the medical and technological breakthroughs, for starters. Moreover, you will be able to experience history-making events in the future. The idea of living longer is pleasing to many people. Mainly because people want to see their families grow up and expand, see their grandchildren, and experience the next generation of their loved ones. Life expectancy has risen by 30 years in the United States in the last century. According to many studies, you can now spend as much as one-third of your life in retirement.
The rising advancements in medical, healthcare, and technology have decreased infectious diseases in children. These advances have also provided better healthcare facilities for adults resulting in longer retirement duration and life expectancy. Increased life expectancy has direct effects on retirement. And the primary challenge that comes with it is figuring out how much money you will need to maintain and sustain your preferred lifestyle.
What is Life Expectancy?
Simply put, life expectancy is an average estimation of the duration a person might live based on a statistical approach. Many factors affect life expectancy, for instance, lifestyle, household economics, and access to healthcare. This is the reason why life expectancy is not always accurate for everyone. Some people might live even longer than what life expectancy suggests.
It’s very important to plan for life expectancy in retirement. Here is how longevity can affect your plans.
1. Plan for Time beyond Life Expectancy
Since life expectancy is just an average estimate, it is crucial to be prepared for years beyond your retirement. If your family has a history of longevity, there is a potential longevity risk with you. This is the reason why life expectancy estimation doesn’t necessarily paint a certain and clear picture of how long a person’s retirement may or may not last.
There is a chance that many people might live substantially longer than the average person. It is crucial to have a life plan prepared for contingencies. Due to the possibility of an extended life span, many financial advisors think that it is best to set the benchmark going into the 90s or even 100s.
Some people ask, “What is the purpose of planning beyond life expectancy?” Well, the goal is to provide retirees with a financial life plan with predictable certainties to sustain their lifestyle for as long as possible.
2. Define Your Retirement Income and Spending Needs
You can use your current spending, income, and financial needs as a guide to formulate a solid definition of what your income and spending needs will be in retirement. Your current expenses are pretty good indicators of your retirement spending.
Although most of your current expenses that you are paying now will either be reduced or will completely go away, some other expenses will also go up, for instance, healthcare and spending tied to children. Longevity can affect your retirement plans heavily. This is the reason why you should be prepared for a better life plan supporting all your financial needs in the future. Be it long-term healthcare, home expanses, or mortgage payment, and you should have a solid idea of the amount you will need to spend as an income when you step into retirement.
You should also know how these needs will decrease or increase as you move beyond your life span.
3. Determine If Your Portfolio Is Sustainable?
One of the most important steps is to determine whether your retirement plan is sustainable or not? Ask yourself whether the assets that supply income to your retirement plan will remain consistent or be affected by market volatility? This is how you can evaluate your portfolio and determine whether your retirement income will be able to sustain your preferred lifestyle.
A good retirement plan covers all the uncertainties and ensures financial protection and sustainability in your future. Longevity risk can be minimized by being smart with your retirement and evaluating your needs carefully. Being confident in your retirement plan and knowing that it is sustainable is very important to have a carefree and fulfilled retirement.
Who doesn’t want to live endless days with their families and friends? However, longevity can profoundly affect your financial plans. Life expectancy is directly related to your retirement plan. Thus it is imperative to have a retirement that has predictable certainties.