How to Plan for a Long Life

You can't know how long you'll live, but you still have to plan.

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Scott Holsopple

Life expectancy for Americans today is about 78 years, but there are a number of factors that influence how long we live. Genetics, geography, lifestyle and wealth are among the most prominent influences on longevity. Doctors and human geographers can even make predictions about life expectancy within a given population.

That being said, we all know that we just don’t know. No one can accurately tell us how long we’ll each live. The uncertainty of life expectancy makes retirement planning more difficult because you don’t know how many years your retirement savings need to last.

The best solution to this dilemma is to plan for all contingencies. Here’s what to consider when starting that process:

You could live longer than you expect. Obviously that’s a highly desirable outcome, but it poses a unique risk: you could outlive your savings. In the retirement planning segment of the financial industry, we talk about longevity risk, which is the risk you’ll live longer than your money.

You could live as long as you expect. All of your financial planning could play out precisely as you’ve always anticipated.

You could pass sooner than you expect. In that case, a large portion of your retirement savings and other assets would be distributed to your beneficiaries.

Planning for Every Contingency

If you use financial planning to hedge against the negative factors associated with both early death and long life, you’ll set yourself up for peace-of-mind.

To ensure you’re not stuck in old age with a healthy body and no money, do all your retirement planning with the assumption that you’ll live longer than expected. It’s not an exact science. You could figure the oldest age to which you can imagine living based on your genetics, health history, lifestyle, geographic location and your doctor’s opinion—then add five years to that.

To make enough to cover the possibility of living longer than expected, you’d need to save more and, probably, save for longer. Your investing strategy may change since this outlook could involve altering your retirement goals. And you could consider diversifying your retirement portfolio by adding an annuity that will guarantee income for the duration of your life even if you live beyond the average life expectancy.

The benefit of long-life retirement planning is simple: living longer than expected would mean more time with your loved ones free of financial stress. And, if you’ve planned for a long life but you pass sooner, your estate will contain more money to pass to your heirs or the organization of your choice.

On the flip side, in order to ensure your unexpected early death wouldn’t leave your family in a poor financial situation, and to guarantee your money would land in the hands of the people and organizations you want to support, go through an estate planning process.

Maintain enough liquid savings for your spouse and/or family to maintain their lifestyle for a few months while your estate would be sorted. Purchase life insurance. Select a death benefit amount that would allow your family to grieve an early loss, make up for your income for several years, and help pay for big events like college and weddings. And be sure all beneficiaries are correct for your life insurance, annuities, 401(k) account and other retirement assets. Lastly, set up a last will and testament to make certain your assets will all end up where you prefer.

If you don’t pass earlier than expected, you’ll still be happy to have a will in place and appropriate beneficiary designations. You may even choose to maintain your life insurance to provide a larger legacy to your heirs, or to support a charitable organization after your death.

Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost-effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.