The Effects of Longer Life Expectancy on Retirement

People are living longer in retirement than ever before.

Life expectancies have risen dramatically over the last century or so in the U.S. Where once many people could not have expected to live past their mid-sixties, now average life expectancy is 76 for men and more than 80 for women, according to the Centers for Disease Control and Prevention. This increasing life expectancy has major implications for retirement age and for the kind of quality of life that retirees can expect.

Working Age

Where once most people looked forward to retirement at age 60 or 65, now many people are working much longer. According to a survey by the Employee Research Benefit Institute conducted in 2009, 24 percent of those questioned had postponed their planned retirement. For some this is a necessity, because they have not saved enough for retirement, and for others it’s a choice, because they are healthier longer, and wish to remain in the workforce.

Longer Time In Retirement

With a retirement age of 65, most people at one time could not have expected to have more than a decade in retirement. Now if a person retires at 65, he might have up to three decades of non-working life left. He might spend a much longer time in failing health or in need of nursing care, meaning retirement year for year can be costlier, and long-term care insurance becomes a serious consideration.

Savings

Supporting 10 years in retirement is completely different from supporting 30 years. In order to maintain a reasonable lifestyle for that span of time, the amount you must save during your working years has increased greatly. The tricky issue of whether you will outlive your money has led to increased interest in financial vehicles such as annuities, which take the uncertainty out of the equation.

Social Security

The biggest public policy impact of increasing longevity is its draining effect on the Social Security system. According to the Government Accountability Office, when Social Security was first introduced in the 1930s, average life expectancy was 63. It’s now closer to 80 years. This has prompted debates over fixes such as raising the age of eligibility for Social Security, raising payroll taxes or curbing benefits.

References

• Senior: The Surprising Impact of Longer Life Expectancy on Retirement Planning; Jan. 29, 2010
• Peter G. Peterson Foundation; Government Accountability Office: Raising the Retirement Ages Affects Older Workers; Art Craig; Dec 14, 2010
• MSN Money: How To Avoid Outliving Your Savings; Robert Powell; May 6, 2010
• Centers for Disease Control and Prevention: Life Expectancy
• CNN Money: 43 Percent Have Less Than $10,000 For Retirement; Chavon Sutton; March 9, 2010