The average 65-year today can expect to live another 20 years, according to the Social Security Administration’s estimates. But the gift of longevity has the potential to be a mixed bag.
It’s a nice thing to enjoy an extended retirement and have more years on the planet to spend time with loved ones. But there’s a financial cost to longevity, and it’s one that many older Americans aren’t prepared for, according to an analysis by the National Council on Aging and the LeadingAge LTSS Center @UMass Boston.
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The data shows that 49% of pre-retirees underestimate their life expectancy by five or more years. But that could have serious implications on their finances.
The average retirement savings account balance among Americans aged 65 to 74 was about $609,000 as of 2022, per the Federal Reserve. But there’s a big difference between stretching that money over 15 years versus 20 or more.
If you’re worried about running out of money due to living longer, you’re not alone. A 2024 survey by Allianz found that 63% of Americans are more worried about running out of savings than death. But the good news is that there are steps you can take to stretch your nest egg.
Delay Social Security
The more money you’re able to get from Social Security each month, the less pressure it puts on your nest egg. The average retired worker today gets a monthly benefit of $1,920.48.
But for each year you delay your Social Security claim past full retirement age, your monthly benefit gets a permanent 8% boost. Delaying a $1,920.48 benefit by three years grows it to $2,227.76 per month instead. You can easily calculate how much holding off will net you with tools provided by the SSA.
Remember, too, that Social Security is guaranteed to pay you a monthly benefit for life, whether you live until 85 or 105. So even if you have a nice amount of savings, delaying and thus growing your monthly benefit is a great way to address the financial burden of longevity.
Keep your savings invested
The more your nest egg is able to continue growing during your retirement, the less likely you are to run out of savings. Work with a financial adviser to create an investment portfolio that’s appropriate for your age and risk tolerance.
And also, try focusing on assets that generate steady income. Bonds often fit the bill in this regard, and dividend stocks can be another great source of ongoing income.
You may also want to look at adding REITs, or real estate investment trusts, to your retirement portfolio, if you’re interested in assets that pay you continuously. By law, REITs are required to pay at least 90% of their taxable income as dividends to shareholders, so they’re a nice option for generating retirement income.
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Use good health to your advantage
Just because you might live another 20 years or more past age 65 doesn’t mean you’ll be as mobile in your 80s as you are today. But if your health is great at the start of retirement, use that to your advantage.
Do your own repairs and maintenance at home instead of hiring help at a higher cost. Work a part-time job to leave more of your savings intact during the early stages of retirement, or join the gig economy and take jobs when it’s convenient for you. The more money you save and earn, the less you’ll need to tap your nest egg.
Buy long-term care insurance
The National Council on Aging report finds that people who have to pay for long-term care out of pocket can expect to spend up to $140,000. It also says that 65-year-olds today have an almost 70% chance of needing some type of long-term care in their lifetime.
Buying long-term care insurance could protect you from future costs that might eat into your savings substantially. But you’ll need to shop for it carefully and strategically.
Unfortunately, many people find themselves priced out of long-term care insurance due to rising costs. If you apply in your mid-50s, you may find that you’re able to secure a more competitive rate on your premiums based on your strong health. This time frame also strikes a nice balance between applying on the early side without having to pay those premiums for too many years.
You should also know that if you have funds in a health savings account you’re carrying into retirement, you can use that money to pay for long-term care insurance premiums. That could make it easier to afford coverage that protects you later on as you age.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
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