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What if You Outlive Your Retirement Savings?

Th (1)We all hope to have a long and healthy retirement, but what if you live so long that you run out of money?

Without knowing how long you’ll live, it’s hard to calculate exactly how much money you’ll need in retirement. If you live into your late 80s, will you have enough? But what if you live to be 95? Or 105?

The Washington Post recently reported in its article, “Your long life could be the death of your retirement savings,” that one thing is certain: when you live longer, your money must last longer.

One of the primary issues is many people adhere to a retirement model that is based on a much shorter life span, and they fail to consider that their retirement could last three decades or more. As a result, they don’t plan on how they’ll pay for that.

Roughly 25% of 65-year-olds today will live past age 90, and one out of 10 will live past age 95,  according to the Social Security Administration. With that in mind, you should use the agency’s life expectancy calculator to get a rough estimate of how long you (and your spouse) may live.

Fidelity Investments recently wrote in a blog that 50 years ago most Americans shared a common view of retirement. You left the 9-to-5 job and transitioned into your ‘golden years,’ which was a period of about 10 to 15 years to live off your pension plan and enjoy life.  However, now it’s hard to say what retirement is. For some, it can be 30 years or more.

With longer lives, it’s critical that we take a second look at our visions of retirement.

Many individuals aren’t able to save enough in 40 years of working to support themselves for 30 or more years of not working.

Healthy retirees typically have much lower monthly medical expenses than those with serious conditions like diabetes or cancer. However, their longer life expectancies mean that they actually need to save a lot more to pay their health care costs in retirement.

So if you come from a family where people live into their 90s, you’ll need to make sure that you save enough for a retirement that could last three or four decades.

Reference: The Washington Post (April 9, 2018) “Your long life could be the death of your retirement savings”