Long Retirement

You've undoubtedly seen the headlines. Tantalizing hints from laboratory research suggests that medical science may soon break the "age barrier" of 120 years, and gene manipulation will allow people to live to 140 or even 150 years. Much of this speculation is based on work with fruit flies, and such breakthroughs, if they occur, are probably years away. Nonetheless, the headlines accurately reflect one reality: people are living longer, much longer, and that is having a significant impact on planning for retirement.

Let's look closer at the reality behind these headlines and what impact it might have on your retirement plans. First, to understand the potential impact you need to understand some basics about life expectancy.

Life expectancy of Americans increased nearly 30 years during the 20th century. The life expectancy of a male born today is approximately 73 years, and the life expectancy of a female is 79 years, according to federal statistics. But that's a misleading statistic for retirees. Those figures reflect all deaths at all ages. If you survive to retirement age, your overall life expectancy becomes longer.

A man reaching age 65 in 1995 can expect to live another 15.6 years - nearly age 81! A woman reaching age 65 can expect to live at least another 18.9 years1 - nearly age 84! This is sometimes called longevity: how long are we expected to live assuming we reach a milestone age - such as 65. Every milestone we reach increases our overall life expectancy. Furthermore, these rates of longevity are increasing. In the first 50 years of the 20th century, the longevity for people reaching age 65 increased 1.3 years for men and 2.8 years for women. From 1950 to 1995, however, longevity for men increased 2.7 years and for women it increased 4.2 years.

But even these longevity figures are misleading, because they are only averages. Half of the people reaching a particular milestone age will live beyond that age. That is, if you are a male who lives to age 65, you have an even chance of living beyond the life expectancy of age 81. We know that Americans now routinely live well into their 80's.

Living into their 90's is far from rare, and Willard Scott never has trouble finding people celebrating their 100th birthday. Federal statistics say that one-third of the men reaching age 65, and nearly half of the women, will reach age 85. And with married couples, it's even more likely that one of you will live beyond life expectancy.

What does this mean for your retirement plans? Let's say you project that you will draw money from your nest egg accounts, such as 401(k) and individual retirement accounts, at a pace that depletes the nest egg roughly by the end of your life expectancy. Yet as the statistics show, you have a 50-50 chance of living beyond that average life expectancy. If that happens, you will have outlived your nest egg, and the only income you will have from then on would be Social Security payments and perhaps payments from annuities or a defined benefit plan, which will continue for the "extra" years you live.

Running out of retirement savings is a gamble most people don't want to take. Planning professionals commonly project clients living to age 90 or 95. And for some people, even that isn't long enough. So while you may not live to 120 or beyond, the odds are increasing that you are going to live a longer time than you might once have thought.

What does this mean for retirement planning? What if you are one of those who celebrates your 100th with Willard Scott?

There is no easy answer here. Long retirements suggest that people may need to be more cautious in their spending in their early years of retirement in order to stretch their resources out further. For others, it may mean being more aggressive in their retirement investing. Working full or part time beyond the traditional retirement age may become necessary. It will be increasingly important to protect against the high expense of late-life health problems by buying long-term care insurance. But most of all, many of us will need to readjust our thinking, and consider the possibility of 100 year lives and what that means to our retirement.

This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Emily S Hazlett Vice-President :Investments at ENB Associates Inc. a wholly owned subsidiary of Evans National Bank. Securities are offered by O'Keefe Shaw and Co.,Inc. Member NASD & SIPC.

ENB Associates Inc. is a wholly owned subsidiary of Evans National Bank. Securities are offered by O'Keefe Shaw & Co., Inc. Member NASD, and SIPC. Products purchased through O'Keefe Shaw may lose value, are not deposits with obligations of, or guaranteed by Evans National Bank or affiliates and are not insured by the FDIC.