By Chris Taylor
NEW YORK If you have reached age 65 and are reading this, you are likely going to live a lot longer than you realize.
The bad news is that you obviously will require money to do so – and you might have to revise your retirement calculations upward.
That is the finding of a new report from TIAA Institute and the Global Financial Literacy Excellence Center, which has discovered that our collective “longevity literacy” – our grasp of how long we are going to be around – is very bad indeed.
“Only a third of Americans have an understanding of how long people live in retirement: 31% underestimate life expectancy, and 35% just said, ‘I don’t know,’" says Surya Kolluri, head of the TIAA Institute.
Indeed, if you get to 65, you are no longer looking at population-wide longevity averages, which are currently around 76.1 years, according to the Centers for Disease Control and Prevention.
That is because you have already outlasted scores of people who did not make it that far. Over time, the averages shift: Men who make it to 65 can expect to live to 84, while women are looking at an even longer runway to 87.
And those are just averages, by the way. Which means that many people can expect to live even longer than that: For those who reach age 65, 30% of men and 40% of women will live to 90 and beyond.
Looking at it another way, for those who make it to 65, the odds of not getting to 70 are very low: between 5-10% for men, and less than 5% of women.
“Longevity risk is real,” says David Demming of Demming Financial Services in Aurora, Ohio. In one recent week alone, Demming, who is a financial planner, hosted meetings with a sprightly group of clients aged 95, 97, and 100.
“The 95-year-old and 100-year-old have large surpluses because of good advice," Demming says. "But the 97-year-old will run out of money this year. We have warned her children and grandchildren.”
It is hard to blame people for not planning all the way to triple digits because that is a very tall order. But since it is a possibility, and you want to err on the conservative side, your retirement playbook may need some revisions.
Here are some ways of how you can rethink and recalculate a longer lifespan:
HOLD STOCKS WELL INTO RETIREMENT
The old notion of retirement allocation was that by the time you reach your golden years, you should be largely or entirely invested in ‘safer’ asset classes like bonds or cash.
But if you are 65 and still looking at another 20 or even 30 years ahead, that allocation will not get you where you need to go. You should consider holding a portion of higher-risk, higher-return assets like equities well into your retirement years. Even if stocks slump, which they can certainly do, with a runway of decades you will have time to earn losses back.
CONSIDER GUARANTEED INCOME PRODUCTS
The ‘risk’ in longevity risk is that you will outlive your cash. With an annuity product, that risk goes away – you can keep cashing monthly checks until you pass away.
Just be wary of fees and commissions, for which this finance niche is notorious. And know that by investing an initial lump sum in an annuity, you take on the risk that you could die the next day and not benefit from those years of checks. But – not to put too fine a point on it – you will not be around to regret that decision.
DELAY SOCIAL SECURITY
With longer projected lifespans, the issue of when to start taking Social Security takes on added importance. If you apply as soon as you can, at 62, you will get permanently reduced benefits.
If you wait all the way until 70, your monthly check will be much bigger for the rest of your life. Over 15 or 20 years, that difference becomes very significant indeed. To grasp how much, use the Social Security Administration’s calculators here: (https://www.ssa.gov/oact/quickcalc/early_late.html).
“If people think about this in three layers, that would be valuable,” says TIAA Institute’s Kolluri. “The first layer is Social Security. The second layer is some sort of lifetime income. And with the third layer, let the market work for you to take care of longevity risk.”
(Editing by Lauren Young and Andy Sullivan)
