The Financial Implications of Living Longer

Life expectancies are at an all-time high, but two-thirds of Americans underestimate how long they’ll live – which is presenting a challenge for retirement planning.

The average life expectancy is 78 years for the first time in American history, according to the Centers for Disease Control and Prevention, and for some it may be even higher.

A healthy 65-year-old man has a 50% chance of living to age 85 and a 25% chance of living to 92, according to the Society of Actuaries.

A healthy 65-year-old woman has a 50% chance of living to age 88 and a 25% chance of living to 94.

If you’re in your 60s, then, you may need your nest egg to last 30 years or more – and that can be a problem.

If you have a $1 million portfolio and obtain a hypothetical annual average return of 7%, you could spend $52,000 per year for 20 years of retirement.

But if that money needs to last 30 years, you could spend only $45,000 a year.

Despite the potential for a longer retirement, retirement-planning strategies haven’t changed much.

That’s because a good financial advisor will use asset-allocation strategies to help protect you from longevity risk.

Those strategies might include adding enough stock exposure to help your portfolio combat inflation, delaying Social Security payments as long as possible and buying a fixed annuity.

A fixed annuity can be particularly helpful because it turns a single lump-sum payment into a stream of cash that extends until death.

Moreover, this strategy is becoming more popular.

According to Beacon Research, sales of fixed immediate annuities were up 2% in 2010, to more than $8 billion.

If you’re interested in a fixed annuity, speak with your advisor.

Your advisor can help you decide if a fixed annuity is suitable for you, given your individual financial circumstances.