How to Plan for Longevity in Retirement
Longevity in retirement is something that one needs to think about. Most research has shown that the longer you live, the longer you will live. Of course, it’s probability, so it doesn’t happen for everybody, right? Still, there are higher chances that the longer you live, the longer you will live.
With that in mind, here are five things you should consider to help you plan for longevity in retirement.
- Healthcare Costs
- Aging Process
- Income Sources
- Impact of Inflation
- People
Let’s break each one down to help you understand how it relates to your plan for longevity in retirement.
Healthcare Costs
Healthcare costs can be tremendous. It is essential to consider how you will pay for health care throughout your lifespan. It’s not only about the ongoing insurance premiums but potentially increasing costs as you age.
There are many different components to healthcare costs that you could incur as you go through retirement. These include
- Ongoing Insurance Premiums
- Medicare Premiums (if you’re 65 or older)
- Deductibles
- Co-pays
- Prescriptions
The costs of each can vary widely and start to add up.
Planning Tip
Examining your current health care and using it as a baseline to consider what you need moving forward can help you create a plan for paying for it as you age into longevity in retirement.
Ongoing health care is not the only consideration. With longevity in retirement comes the possibility of a time when your mind may be sharp, but your body is unwilling. Maybe your body is healthy, but your mind is starting to diminish in some capacity.
In these situations, you may incur healthcare costs related to aging, such as
- Long-term Care
- Help around the house
- In-home or Care Facilities
There are many different options regarding aging, but it all comes down to learning about healthcare costs and how to pay for them. Depending on your age, you may have more options to tackle that problem, whether you decide to use your own funds or look at insurance solutions.
Aging Process
I often find that when people are ready to retire, they think of the first phase. They see the part where they are still young and healthy enough to do everything they desire, such as
- Traveling
- Volunteering
- Spending time with their family
- Enjoying a hobby
It’s a great time, but one that may only last for a while. Just like life, retirement has phases. As you age, you may need more help or more care. Successful longevity in retirement planning does not only consider this first phase. It looks at all three phases of retirement.
I like to call the three phases of retirement the “go-go,” “slow-go,” and “no-go.”
“Go-Go”
This is the phase most people think about when they think about retirement. They have enough money to live on, travel, visit the grandkids, volunteer or do charity work, explore a hobby, etc. Typically, this is in the mid-60s to maybe mid-70s.
“Slow-Go”
Slow-go is usually the lowest-cost period of everyone’s lifetime. You’ve now reached the point where you’ve hopefully done the things you wanted to do. You’re starting to slow down.
Because you’re a little older, you may become more of a homebody or local body. You are still in good health but cannot do the things you used to be able to do.
“No-Go”
You’re now entering what is generally one of the most expensive retirement phases. You may need that extra help around the house or with regular activities like getting out of bed, bathing, or cooking.
Understanding the ebbs and flows of aging is an important part of planning for longevity in retirement. You don’t want to burn through all of your money in the “go-go” phase because you know the “no-go” phase is eventually coming.
Most people want to avoid burdening their family by having their family step in to cover those timeframes. So it’s good to have some resources to help plan for that.
Income Sources
How are you going to pay for all of this?
Planning for longevity in retirement means looking at your income sources. Preparing for ongoing healthcare costs, aging, and retirement stages also means considering the stability of those income sources.
You may have income sources like
- Social Security
- Pension
- Savings and Investments
Whatever your income sources, you need to know how to position them best to provide ongoing income for the long run.
We often have Social Security, and some may have a pension, which were typically guaranteed sources of income. However, I realize there are question marks around Social Security regarding funding concerns.
If you have a pension, hopefully, it’s guaranteed. The company funds pensions, so there is always some risk. One would hope that it’s low risk based on your company.
The Walt Disney Company has a pension that is funded pretty well. Of course, nothing’s ever 100% guaranteed, but The Walt Disney Company guarantees it. As of the date of this post in 2024, that guarantee is in pretty good standing.
Those two sources of income may be enough. They may not. This is when your savings come to mind. Maybe you have other income options, including
- 401k
- IRA
- Stocks
- Mutual funds
- Savings accounts
Your portfolio should be designed to help you generate additional income to pay for your ongoing health care and aging costs, yet hopefully, it will still grow over time.
Impact of Inflation
Inflation is a part of life. It’s a broad term covering all aspects of things we consume and spend money on. Inflation can vary from product to product or service to service.
When inflation is quoted on a headline like CPI (Consumer Price Index), it’s the average for many different categories boiled down into a number.
If not planned for, inflation’s impact can significantly affect one’s longevity in retirement. You need to consider the effect of inflation on your usual standard of living, healthcare, and aging costs.
Healthcare typically runs at a higher rate of inflation than other expenses. To plan for longevity in retirement and aging, you want to ensure you have the proper inflation numbers associated with health care and plan appropriately for those costs to increase faster than other goods and services you may pay for.
People
Who are the people that will be involved as you go through the aging process?
This can sometimes be the hardest or easiest part of longevity planning. It depends on your situation. You have to think about what happens if you can no longer manage your finances. Who is going to step in to help with things like
- Paying your bills
- Filing your taxes
- Managing your investments
- Coordinating health care needs
- Scheduling appointments
- Making health care decisions
There may come a time when you need to hand these things over to someone else to manage for you, whether partially or completely. Think about the available and trustworthy people in your life.
Remember that the aging process could be a long time. Longevity in retirement means living into your 70s, 80s, 90s, or maybe even 100s, depending on your health, history, and other factors.
It may work out to have your peers or siblings help out as you age. However, there may be a time when they cannot help or need help themselves.
You also have to look at the next generation, such as children, if you have them. Maybe you have children but have a tense relationship with them, so you look to nieces or nephews instead. I’ve seen some clients use work colleagues or people with whom they have had good relationships over time who are willing to take on that responsibility.
Planning Tip
Don’t just appoint someone. Talk with that person about what you are asking them to do. Make sure they are willing to accept the role, and then work with an attorney to set up the proper documents.
The people component is a significant factor in planning for longevity. You need to have the right people in place to implement your plan as you experience longevity in retirement and aging.
In a Few Words
I realize this is not a warm and fuzzy topic. It’s not fun to talk about growing old and the possibilities that may come with longevity in retirement. Still, it is a part of life and must be considered and addressed in your planning.
Think about
- Healthcare Costs: Look at the current and estimate the future.
- Aging Process: What might be needed?
- Income Sources: What do you have, and are they stable?
- Impact of Inflation: How will it affect your expenses?
- People: Who do you trust and is willing to help?
Most importantly, create a plan and build a team that can potentially help you succeed.
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