Longevity in Retirement: What To Expect
Here are some Key Takeaways:
- For a married couple aged 65 today, there’s a 92% chance of at least one spouse living until age 85 if both are non-smokers. This emphasizes the need to plan for a potentially long retirement.
- There’s often a discrepancy between “expected” and “actual” retirement age. The median expected retirement age is 65, while the actual median retirement age is 62.
- Health problems/disability (35%) and caring for family members are major reasons for early retirement, accounting for about 50% of early retirements.
- People tend to underestimate their longevity while overestimating how long they’ll be able to work, which can lead to planning challenges.
- Having a margin of error in monthly cash flow and living below your means are important principles for dealing with unexpected retirement scenarios.
- It’s crucial to prioritize taking care of yourself financially throughout your career, as there will always be competing priorities.
- Working with a financial planner to create contingency plans and “worst-case scenarios” can provide peace of mind and better preparation for unexpected early retirement.
Timestamps for Longevity in Retirement:
0:00 Who will live into their 90’s?
1:20 “I’ll work as long” vs. “I’ll live as long”
2:36 Reasons People retire early
4:30 Your expenses in retirement
6:15 Longevity in retirement – priorities
7:29 How social security factors in
Longevity in Retirement: What To Expect – Links
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Longevity in Retirement: What To Expect – Transcript
All right, we’re back at it again. We are going to continue our deep dive through JP Morgan’s guide to retirement. This time we’re going to start with one of the most basic but important assumptions in retirement planning, and that’s longevity.
The idea here is that most financial plans we put together for a married couple have to plan for at least one of the spouses to live well into their 90s. Some stats from the guide to retirement show that for both spouses aged 65 today, you have a 92% chance of at least one spouse living until age 85 if both are non-smokers.
So, if someone retires at 65 and one of them is living until 85, that’s 20 years of retirement that we have to plan for. I think that’s one of the first things we discuss when putting together retirement plans: the importance of doing that and making sure there’s a little margin for error in case one spouse lives longer than expected.
Longevity in Retirement (2): “I’ll work as long” vs. “I’ll live as long”
People have different opinions. They might think, “I’m not going to live as long as my wife” or vice versa because of family history, beliefs, or whatever. Some people want to work for as long as they can, but the next thing that JP Morgan looked at was the expectations of workers versus retirees.
Workers plan to retire at age 65 or older, but the actual experience is that (just) 31% of retirees retire at age 65.
**The “expected” median retirement age is 65.**
**The “actual” median retirement age is 62.**
A couple of years there, some unexpected things might come up, such as health concerns.
Or maybe your company is restructuring and something happens with your position.
What should folks think about to account for not being able to work as long as they originally planned?
Longevity in retirement (3): Reasons People retire early
Looking at the chart on the screen, the first chart Casey was talking about, and the second one, “Reasons for retiring earlier than planned.”
Let’s look at the first option and then the third option. The first reason why people retired earlier is a health problem or disability, accounting for 35% of people who had to leave work early.
The third option is having to take care of a family member. So there’s 50% of your answer right there: people leaving because of health reasons for themselves or having to take care of someone else in their family. It’s big.
And it’s usually unexpected.
And it happens suddenly too.
I think it’s interesting that the two stats we just talked about are almost at odds with one another.
Because one is that people think they will work longer than they actually end up doing, and the other is that people think they will die sooner than they end up doing. Maybe it’s just that people have a hard time imagining something that’s not happening right now.
If they’re working now, it’s easy to say, “This can continue indefinitely. I’m already doing it, so it’s easy to imagine.” But the version of them that’s retired and potentially approaching 90 years old is like, I don’t know – it’s tough to believe because
Because it’s tough to picture in their mind.
These two seem to go head to head with one another, and I find that interesting. I don’t know what the answer is, but it seems part of the human condition to assume both of those things: that you’ll die sooner than statistics say you will, and that you’ll work longer than statistics say you will.
Longevity in retirement (4): Your expenses in retirement
One idea from JP Morgan’s piece was that older workers in their late 50s or early 60s could try to take out some sort of disability policy that would cover their income for a couple of years. Other than that, I think a lot of the same rules apply: expenses are going to drive a lot of the need.
If you need to start pulling from your investment account sooner than you anticipated, that’s obviously going to affect the back end of the plan. But if it’s a health concern, then maybe the plan isn’t making it until age 90.
So pulling from the investments earlier than anticipated isn’t really going to change the overall outcome of the plan.
I think it just goes to show that, Brendan, like you said, we’re bad at anticipating the unexpected. The more margin of error you can have in your monthly cash flow, living below your means, I think the same principles apply in this situation that they do to pretty much any other situation.
Looking at this and using real dates and talking about different generations, I can only talk about mine. If you were born in the 1950s or late 50s or in the 60s, just walk through this with me. You got out of college and then you got married, started a family, so you were – for many years – saving money to buy a house.
Then you’re raising your family, then you’re putting your kids through college, and now you’re in your late 50s, early 60s, and you’re like, “OK, I’ve got a few years now, I can really step on the gas and sock some money away for our own retirement.” And then you get sick or a family member gets sick, and you have to shift gears and stop what you’re doing.
That’s a real problem in the sense that you’ve been taking care of everyone else, and now you need to take care of yourself, and you’re getting yanked away from your job. It’s tough.
You need to be prepared for this. You can’t let it surprise you.
Longevity in retirement (5): Priorities
What you just described is that there are always things going on. In an ideal world, you’re saving, and there are no other priorities, but there are always going to be other priorities. So I don’t think you can use any of them as excuses.
Life’s tough; these things are always going to be happening, so I think you just have to make it a priority to take care of yourself, whatever that means. From our perspective, it’s finances, but in other ways too, because if not you, then who? It’s not something you can put off for tomorrow.
You need to be taking care of yourself in terms of your health and saving money because you never know when you’ll get to the end of the road.
Longevity in retirement (6): Social Security
One other switch that could be flipped in this instance is if you have a disability, you might be able to collect Social Security disability benefits before age 62, which is when you typically are able to start pulling your retirement benefits. If you meet the thresholds for disability, you could start receiving those.
Or if you were waiting until age 70, which was your ideal outcome, you could always flip the switch and start collecting Social Security earlier than you anticipated to get some additional cash flow.
You could, but then that’s at odds with the longevity statistics, so I guess it depends on your circumstances. If you’re not working any longer or retirement happens sooner than you were expecting because your health is poor, then maybe you have a different set of circumstances than the base rates would suggest.
But I wouldn’t excuse myself from base rates without a good reason and the specifics to say that it makes sense and it’s not just my feelings that tell me I’m not going to be part of the statistics that give us stats like longevity. If you’re using a table like the Social Security life expectancy table, that’s everybody.
So unless you have a really specific case that you can speak to way better than the average, then I think you’re probably better off relying on the averages.
It’s a trade-off, obviously. You can only deal with what you have, so perhaps taking Social Security sooner than you wanted to is an answer, but that’s probably going to involve trade-offs in terms of you being less hedged against living into your 80s and potentially even your 90s.
If that’s a trade-off you’re willing to make, then that’s great, but it’s tough to have both of those things. Usually, one is at odds with the other, so you have to choose one.
We always say that you have to do the work when you’re thinking through different retirement scenarios. If you work with a planner, we can help you think through and quantify the different scenarios.
So, I think the main point of this is to just expect the unexpected and maybe have a contingency set of plans in your back pocket. If you have a relationship with a planner, you can walk through that and ask, “What’s the worst-case scenario here?” just so you have that peace of mind if and when something does happen and you’re forced to retire earlier than you anticipated.
