Longevity is a double-edged sword. On one side, the gift of a longer life brings more experiences, memories, and milestones. On the other, it introduces complexities into how one financially prepares for their later years.
However, a 74-year-old man in 2020 could expect to live another 11 years, and an 80-year-old woman could expect to live nearly another ten years! This doesn’t mean someone born in 1946 was initially expected to live 85-90 years. Instead, it highlights the evolving nature of life expectancy predictions.
Usually, life expectancy is a prediction made at birth, providing an average lifespan one can expect based on current mortality rates. On the other hand, conditional life expectancy adjusts these predictions as we age, accounting for the fact that older individuals have already sidestepped numerous potential mortality risks, such as early-life diseases, accidents, or other life-threatening events. Additionally, healthy lifestyles, access to healthcare, and advances in medical treatments can extend life expectancies for older populations.
Considering technology is advancing at ever-increasing rates, it’s becoming increasingly difficult to figure out just how long we need our money to last – in fact, it’s difficult to even pin down a ballpark figure.
As conditional life expectancy shifts our understanding of longevity, we need to adjust our financial plans in tandem.
A popular asset allocation strategy is the Rule of 100, which suggests that individuals should subtract their age from 100 to determine the percentage of their retirement portfolio to invest in riskier, high-growth assets like stocks. However, given the extended life expectancies, this rule might be too conservative for some individuals.
However, real-life is more nuanced. Factors like your family history, lifestyle, age, and current asset situation play a role in determining the most strategic time to claim Social Security benefits. These considerations, combined with the uncertainty surrounding life expectancy, further emphasize the importance of careful financial planning.
Also, the longer you live will necessitate taking more and more withdrawals from your savings – savings you may have wanted to save for your heirs. New family members may also come into the picture, complicating your strategy and potentially watering down the impact of your wealth transfer.
On the other hand, you may have a better opportunity to see any philanthropic endeavors come to fruition, whether it’s through active participation or witnessing the benefits of your donations. On the legacy front, you will have additional years to consider how you want to be remembered and ensure your actions and financial plans align with those aspirations.
Of course, as we grow older, we not only have to worry about our dollar stretching long enough to make ends meet and maintain our desired lifestyle but also to pay off the mounting medical bills that may stack up.
It’s no secret that healthcare expenses are rising rapidly. As you age, medical costs— from routine check-ups to specialized treatments—can take a considerable chunk of your retirement savings.
This is all a lot to take in – we don’t know how long we will live, whether we will need long-term care, how high our medical bills might be, or what direction the stock market will go when we retire. We may have to stay exposed for more extended periods of time to make up for longer life expectancies, but we need to keep short-term goals into account as well.
Consulting a financial advisor who’s up-to-date with the modern landscape is crucial. They can guide you in planning for both the exciting times during early retirement and the unforeseen years to follow that are more difficult to forecast. They’re also informed about how advancements in healthcare and technology might shift our expectations for savings and health expenses.
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