Could Living a Long Life Cause You to Go Broke? Strategies To Make Your Money Last

Published by Scott Ford, Member of the Investment Committee for Carson Group Partners

Have you ever thought about the possibility of living past the age of 100? If you haven’t, you probably should. While there are currently about 75,000 centenarians in the United States, it is predicted that by 2050 that number will rise to 1 million.[1] People are living longer than ever before, and this plays a significant role in how you plan for your retirement.

What Is Longevity Risk?

Longevity risk is simply the risk of living longer than expected. According to the Social Security Administration, the average life expectancy for males who are currently 65 is 84, and for females, 86. But, 1 in 4 will live past the age of 90, and 1 in 10 will live past 95. Based on these numbers, your retirement could easily last 30 years instead of 20. Those ten years have the potential to make or break you financially. What strategies can you employ to ensure your money lasts as long as you do?

1. Set A Budget (And Stick To It)

A budget will protect you from financial leakage. Leakage is money wasted in small ways that add up exponentially over time, like that extra coffee you buy every day or losing money because you don’t have a tax strategy in place. Sticking to a budget not only allows you to monitor your finances and keeps you on track, but it also shows you areas you can cut back on spending if you need to stretch out your retirement savings.

When creating your budget, you will first need to determine what your necessities are. Ask yourself, “If I were to lose my job tomorrow, what expenses must I maintain in order to manage my household?” This may help you realize that you may not need the premium cable package, but it’s necessary to keep the A/C and heater running.

2. Minimize Risk

To pursue your objectives, implement an investment strategy that takes into account market risk, inflation risk, and time horizon. As you draw closer to retirement, and especially once you enter your retirement years, your asset allocation should change. When you started investing in your younger years, your portfolio was probably weighted more heavily towards stocks and aggressive investments. But, as you age you need to lean towards the conservative side, focusing more on preservation than growth. Staying within your risk tolerance level will protect the wealth you have worked so hard to build.

3. Plan For Healthcare Expenses

According to the Employee Benefits Research Institute, the average couple at age 65 will require anywhere from $157,000 to $392,000 in health care costs. Most people don’t even have that much in their retirement accounts to live on, let alone cover medical costs. Even with Medicare, there could be significant out-of-pocket expenses and many conditions/treatments that are not covered. Create contingency funds to offset the damage healthcare costs could do to your retirement income and also consider long-term care insurance.

4. Maximize Social Security Benefits

Social Security is a major part of your retirement game plan. It was designed to replace 40% of an average worker’s wages.[2] That’s money you don’t want to leave on the table! There is no one-size-fits-all claiming strategy, so it’s critical to work with an experienced professional to make the right decisions for your situation.

5. Monitor Your Plan

Life changes at a rapid pace, thus you need to stay on top of your plan and regularly reevaluate your financial situation. This will prevent major upsets and surprises down the road and will help you correct any problems as early as possible. Work with your financial advisor to continuously monitor and readjust your retirement strategy if necessary. You may need to increase your catch-up contributions or consider alternative income streams to make your money last longer.

Don’t Delay

There’s no way to predict exactly how long you will live, but don’t let the fear of the unknown hinder you from being proactive. Work with an effective financial team to create a strategy that will reduce the impact of longevity risk on your finances.


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