Americans' continuing longevity gains may be the ultimate good news-bad news story for our times. The longer we live, ironically, the higher our stress levels rise concerning outliving our money, having good retirements, and being able to afford long-term care expenses.
Our retirement savings are already inadequate. Healthcare costs continue to soar. And the major programs that help us afford our later years—Social Security and Medicare—face cuts to help balance the federal budget. No wonder a major retirement confidence survey released last week found Americans deeper in the retirement doldrums than at any other time in its 21-year history.
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The National Center for Health Statistics also reported last week that U.S. deaths in 2009 dropped for the tenth year in a row. Life expectancy at birth rose to 78.2 years from 78 years in 2008 (for women, the average went up a tenth of a year to 80.6 years; for men, it rose two-tenths of a year, to 75.7 years).
For folks already at retirement age, life expectancies also continued to increase. A 65-year-old man was expected to live, on average, another 17.3 years in 2009, up from 17.2 years in 2008. A 65-year-old woman would live, on average, another 20 years in 2009, up from 19.9 years in 2008. It should be stressed that these are averages. The ranks of the "old old"—people age 85 and up—are soaring.
Here are eight strategies that can help you enjoy your later years and take advantage of the medical and lifestyle changes that are helping us live longer and longer.
Cut current consumption. There is no way around it. You should seriously consider foregoing spending today so that the dollars will be there for you tomorrow. The 2011 Retirement Confidence Survey from the Employee Benefit Research Institute reports that a new reality among consumers has set in. Increasingly, we understand the long-term challenges of retirement, and believe we've entered a "new normal" period that will require downsizing and sacrifices. We may have changed our perceptions but, to date, EBRI finds, we have not changed our retirement planning and savings behaviors.
Maintain more aggressive investment portfolios. Target-date funds got slammed during the market meltdown for being overly invested in stocks. These funds are designed to reflect "best thinking" about the needs of people in different age groups, and have become the leading default investment choices in 401(k) plans. Despite the criticisms, the managers of many target-date funds argue that longevity gains require older investors to keep higher percentages of their retirement funds in stocks and other higher-earning, higher-risk securities. These funds are still under scrutiny for fees and other practices. But the need to plan for 30-year retirements has not been challenged.
Inflation-proof your life. The impact of inflation, even at low annual rates, can be devastating to fixed incomes over the increasingly long life spans that many of us will have. Think hard about sacrificing some current investment returns in exchange for TIPS (Treasury Inflation Protected Securities) and other yield-sensitive holdings that will help your returns keep pace with future rates of inflation. Do some contingency plans for a high-inflation future. What would your annual spending needs look like if inflation averaged 3 or 4 percent a year, instead of the 1 to 2 percent we've been seeing?
Hit the gym. Chronic health conditions are the greatest physical and financial threats of old age. There are no sure-fire ways to prevent these problems, but taking better care of ourselves is the best—and cheapest—way to reduce the odds of facing devastating illnesses in later life. You already know this, of course.
Extend insurance coverages. Living longer means we'll need to protect ourselves and loved ones for longer periods of time. Maybe you thought your life insurance could wind down when your kids were grown, or when you hit your seventies. Think again.
Long-term care expenses. Imagine yourself at 85. Even a healthy 85-year-old will likely need at-home or institutionalized care. The Alzheimer's Association has just issued its sobering annual look at the rising numbers of older Americans who have contracted this disease and who are projected to suffer from it in the future. How will you protect yourself and your family from devastating long-term care expenses? For starters, look into insurance, at least to understand what it covers and whether it makes sense for you. If you want to stay in your home for a long time, honestly assess what you need to do to make your home the kind of place that will accommodate your changed physical needs in 10 or 20 years.
Longevity insurance. Might it make sense to buy an annuity that doesn't begin making payments until you turn 85? You can get one for a good price, because insurers rightly figure the odds are decent that you won't survive to the age of 85, or much beyond that mark. If you knew there would be a stream of income kicking in when you turned 85, you could plan to spend down your other assets by that time and not worry about outliving your money.
Women-centric financial planning. Women face much greater retirement and longevity risks than men. Not only do they live longer, but the deaths of their husbands usually place them at a financial disadvantage. This is especially true for women who have had careers and pull down solid Social Security benefits. Dual-earning households can receive two decent Social Security payments each month. But when one spouse dies, only the higher of the two benefits can still be received. This can sharply reduce the household income of the surviving spouse. Because that's usually a woman, it makes sense to plan today for at least several years of widowhood.