Broker Check

Longevity Risk in Retirement: What to Expect

November 02, 2016

Many Americans share the same fear when approaching retirement about whether or not they have saved enough money to even retire in the first place. This anxiety often drives a lot of focus on investing and retirement planning decisions. However, there is another decision and risk that deserves equal consideration: longevity. It is important to plan for longevity risk as you prepare to retire.


People are Staying Retired Longer

According to statistics from the US Census Bureau, the life expectancy at birth for Americans increased 62% between the years 1902 and 2000. It grew from 47.3 years to 76.8 years. The Census Bureau predicts that this pace will continue until we reach an average life expectancy of 79.5 years by 2020. In short, this means that people are living longer and your retirement could last even longer than 20 years. That can be a happy thought to enjoy more golden years, but also frightening if you are unprepared.


Just saving 80% of your income could result in a deficit between your total savings and the amount you will need to cover your longevity risk. Planning for longevity risk is a huge safeguard because it can help prevent the need for you to downsize your life during retirement, or worse, return to the workforce out of necessity.


Kickstart Contributions to Retirement Plans

If your benefits package offers a 401(k) or IRA plan of any kind, now is the time to begin contributing more to that plan so you can build up more wealth before retirement. Using the "catch-up contribution,” the US government permits those over the age of 50 to make extra contributions to 401(k) and IRA plans, at $6,000 for 2016.


Delay Social Security

Waiting to collect your Social Security benefits can reap monetary benefits that transcend those funds lost by opting to not receive it early on. Many Americans believe that Social Security is going to become defunct or that they will not live long enough to benefit from it; this leads to accepting their social security immediately upon eligibility.


However, the longer you wait to take your Social Security benefits, the higher the monthly payouts are to allow you to enjoy a delayed retirement credit. Every year past your full retirement age up until 70, earns you more delayed retirement credit. For example, if you were born in 1943 or later, each delayed year is an 8% boost.




Think about Long-Term Care Insurance

According to the United States Department of Health and Human Services, individuals turning 65 today have a 70% chance of needing long-term care services at some point during retirement. Healthcare costs add an immense strain to your retirement nest egg, but you can defray those costs if you secure a long-term care insurance plan. The longer you wait to do so, the more expensive it will get, especially if you suffer from a chronic illness or disease. In short, it is beneficial to signup while you are younger.


Health Savings Account

You can further contribute to a financially steady retirement by opening a health savings account, which is a tax-advantaged way to pay for medical costs eligible under your health insurance plan. These are often paired with high-deductible plans, but you do not have the spending obligation each year as you would in a flexible account. If you have no health emergencies, the unused money continues to grow, but if you need to utilize funds, it is still there to help cover your costs.


Money in your health savings account can be rolled over each year, helping you prepare a sizeable reserve to cover medical expenses during retirement. Additionally, those contributions are deductible on your taxes and you will not pay withdrawal fees for qualified medical expenses.


With medical advancements every day, it is remiss to assume that you will not live a long retirement, so plan accordingly and take longevity risk into consideration as you prepare to build a nest egg capable of supporting you throughout your retirement years. We, at Manhattan Ridge Advisors stand by our mission to achieve outstanding long-term investment results for our clients through personalized plans that reflect their financial needs.



The opinions expressed are those of the writer and do not necessarily represent the opinions of Manhattan Ridge Advisors