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If you're expecting a long life, take time to adjust your financial plan

CNBC CNBC
Kelli B. Grant | @kelligrant 7 days ago
If you're expecting a long life, take time to adjust your financial plan

In contrast, the Social Security Administration's life expectancy calculator estimates that, on average, a man turning age 65 today can expect to live until age 84.3; a woman, to age 86.6.

"And those are just averages," the SSA notes. "About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95."

Celebrating such milestone birthdays for older relatives spurred Holly Wolf, 56, and her husband, Gary, 60, to reassess their retirement plans.

The Fleetwood, Pennsylvania, couple can count on one hand the number of relatives in the preceding two generations who have passed away younger than 80. Many of the rest of the couple's relatives lived into their high 80s or 90s. Holly's father is now 92, and Gary has a great-aunt who is still very active at age 99.

"We saw, we've got a lot of people who are living long," said Holly Wolf. "We can't use the number of living to 80, because they've all outstripped that."

More consumers should be taking that kind of notice.

People tend to underestimate how long they might live: 43 percent of retirees and 38 percent of pre-retirees fell short by at least five years when asked to gauge the average life expectancy for someone of their age and gender, according to a 2011 survey from the Society of Actuaries.

The SOA surveyed 800 retirees and 800 pre-retirees, ranging in age from 45 to 80.

Asked about their own life expectancy, only 31 percent of retirees estimated they would live two or more years beyond the average for someone their age.

That "longevity bonus" is both benefit and challenge. According to surveys, outliving your savings in retirement is a significant fear and even a fate worse than death. But it's an issue people aren't sure how to plan around.

Only one third of consumers know how long their assets would last in retirement — it's the risk they were least prepared for, according to a 2017 report from SOA and two other actuarial associations. Half had some plan for living longer than expected, while 55 percent had planned for chronic health problems in retirement.

(Longevity doesn't always mean extra healthy years, and the latest estimates from Fidelity anticipate even a healthy couple could spend $275,000 on routine care in retirement.)

Here's how to rise to the challenge:

If nothing is certain but death and taxes, the timing of the latter at least is much easier to anticipate. Getting a sense of where your life expectancy might fall compared to the average is largely guesswork — and there's no guarantee.

Many predictors for longevity and risk factors for health problems are under your control; others aren't, said Jeanne Y. Wei, a medical doctor and the executive director of the Donald W. Reynolds Institute on Aging at University of Arkansas for Medical Sciences (UAMS).

"The best thing would have been if we could have chosen our parents wisely," she said, with relatives living with good health into their 100s.

Family histories of cardiovascular problems, cancer, diabetes and dementia are the big four risk factors to monitor, said Wei, who is also chairman of the department of geriatrics at UAMS.

And it's worth noting the prevalence of long-lived relatives. But consumers should also keep in mind that conditions contributing to an older relative's early death are likely to be more treatable now, or avoidable if we make different choices (say, not smoking or by being more active).

"If either of your parents lived to 75, your chances of making it to 95 are excellent," said, Wei, who cautioned: "That's a predictor. It doesn't have to be true."

Your own health habits — especially in terms of diet, weight, activity (or lack thereof) — and choices around smoking, drinking and drug use, are arguably even more important predictors, said certified financial planner Carolyn McClanahan, who is also a medical doctor. She is a co-founder of Whealthcare Planning, which helps people plan for the finances of aging.

"If you're a big partier, a smoker and you're overweight, that's not going to help you," said McClanahan, who is also director of financial planning for Life Planning Partners in Jacksonville, Florida.

There is some opportunity to turn around your habits in middle age. And researchers have found that conscientiousness is the personality trait that is the most strongly associated with longevity, said Wei.

"If we own our own health, we're going to do much better," she said. "We make so many decisions each day. We can choose to make it healthy, or not."

For a quick gut check, there are plenty of longevity calculators like the Actuaries Longevity Illustrator (from the SOA and the American Academy of Actuaries) and Living to 100, that aim to gauge the likelihood of you reaching certain ages and provide financial and health recommendations. Those can provide a launching point for further conversations with your doctors and financial advisor.

Get a trusted team in placeFinding the right financial advisor, accountant and attorney to work with on your financial documents and plan serves you well throughout your life — and especially as you age. Not only can they help you navigate complex retirement decisions like when to claim Social Security and what's an appropriate rate to tap resources, but they can also be a key resource in heading off the growing problems of elder fraud and elder financial abuse.

Rethink "retirement""I've been on this agenda for a number of years now, that we need to quit talking about retirement planning and start talking about planning for when you can no longer work," McClanahan said. "Retirement was not intended to last for 30 or 40 years."

One of the best things someone anticipating longevity can do is to rethink at what age they leave the workforce, she said.

"Every year you work is more financial security," McClanahan said.

Staying in the workforce longer triggers numerous financial advantages. It lets you keep generating income (reducing or eliminating the need to pull from savings), and offers more opportunities to add to retirement savings, she said.

Working longer can also help you delay claiming Social Security, boosting its value — especially for people whose late-life work replaces a zero-income year in the calculation. That valuable source of income can buoy you in later years, as you spend down other savings.

Working and volunteering also have benefits for healthy longevity, Wei said. They tick off several boxes — including a positive, purpose-driven outlook and social interaction — that research has found helps maintain cognitive function.

"Most of us look forward to retirement, thinking we're going to get to do everything we want to do," she said — but notes that not all retired individuals are happier. "Sometimes it's good to keep working."

It's a tactic plenty of people are already considering: Only a quarter of employees say they do not plan to work in retirement, according to a 2016 Transamerica Center for Retirement Studies report. (That doesn't mean those workers are staying in the same job, or keeping the same full-time hours.)

But basing your longevity plan solely on working longer isn't a solid bet, either. Nearly half of retirees report leaving the workforce earlier than planned, according to the 2017 Retirement Confidence Survey from the Employee Benefit Research Institute. Many cite problems like poor health, company downsizing or the need to serve as caregiver for a family member.

Originally, Wolf and her husband both planned to retire at age 60. But now, she said, they're rethinking that timeline — in part because they want to keep their financial plans on track, but also because they both enjoy their work. (She's currently in marketing for an orthotics company; he's a self-employed carpenter.)

The new plan: At some point, scale back to take on projects and hours of their own choosing, rather than schedule a hard stop.

"I think, what am I going to do if I retire?" she said. "We want to travel, but I'm not sure we'd be traveling 50 weeks a year."

Revisit investment strategies"To a 20-year-old, what does it mean that you might live to 100? Save more," said Kai Stinchcombe, co-founder and CEO at True Link Financial, which offers financial planning and investment services for retirees. "For somebody at 70 … it has some very specific ramifications."

To help extend your savings at retirement over a longer time horizon, work with an advisor to assess both your investment allocation and your draw-down strategy in relation to the number of years you expect to live, he said.

The old rule of basing stock asset allocation on a formula of "100 minus your age" — leading to, say, a 40/60 stocks/bonds split if you retire at 60 — is outdated. If you have 30 years in retirement, a "safe" strategy may not grow your assets enough to keep pace or outpace inflation, which could lead to struggles down the line to maintain your standard of living or manage a big medical bill, Stinchcombe said.

"Money you're not going to touch for 20 years should not be in CDs," he said.

Used with caution, an annuity can also provide protection against longevity risk. For example, Stinchcombe said, buying a deferred annuity in your 60s that kicks in at 80 or 85 may use up less capital than holding back savings to cover those later years. There's an obvious risk — if you die before the benefit kicks in, that money is lost.

"If you're setting aside assets for age 85… you might be alive then or you might not, frankly," he said.

Check spendingDecisions you make about how and where you'll spend your retirement add up. That's especially true on the housing front, Stinchcombe said — both in terms of geographic variations in costs of living, and choices like the type and

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