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New studies from the CDC show that we’re living past our life expectancies. While modern medicine has enabled us to extend our natural lives, not every senior retirement plan is prepared to finance the extra years. As an advisor, are you making sure that your senior clients are financially prepared to live longer?
The Changing Life Expectancy
A lot has changed over the past decades, especially when it comes to our average life expectancy. The average life expectancy for someone born in 1950 (now would be 66-years-old) is 68.2. Contrast that with the life expectancy of someone born in 2014—78.8—according to the Center for Disease Control and Prevention. A person born today can expect to live, on average, 10.6 years longer. Furthermore, a 65-year-old in 1950 could expect to live another 12.8 years, while a 65-year-old today can expect an average of 18 more years.
More People Are Living Longer
Aside from the increasing life expectancy, we’re also seeing more people living into their 100th year and beyond. In fact, the CDC counted 72,197 Americans aged 100 or older in 2014, a number that has sharply increased by 44% since 2000. This is only the beginning of this rise in seniors living to later years—by 2050, we’re expected to see a million seniors living in their 100s. Those who aren’t going to reach their century mark will likely see much of their 90s.
What Can Seniors Do?
Because most retirement planning is done based on an individual’s life expectancy, many seniors aren’t going to be prepared to live so long. While the promise of longer life is great news, the longevity risk that comes with it is challenging, especially for retirees who already have a working retirement plan and a set withdrawal rate. That rate, however, might need to be reanalyzed as longer life expectancies play out. If you work with seniors who aren’t prepared to live past their expectancy, it might be time to review their finances and make adjustments accordingly.
- Make more aggressive investments with money tucked away in 401(k)s. This can help seniors off-set the possibility that they might not have enough saved to last them well into their late 90s and early 100s.
- Review and change monthly budgets in order to free up some money. If your clients decrease their expenses, they might be able to lower their set retirement withdrawal rate and extend the amount of years their funds will last.
- Audit personal assets to find any potential money pots. Many valuable assets, like cars, jewelry, or valuables can often retain a high value, and sometimes even increase in their value.
- Sell a life insurance policy through a life settlement to obtain a large sum of upfront cash. Life settlements allow life insurance policy holders to sell their unwanted or unneeded policies into the secondary market for a sum of money that is larger than its surrender value.