Longevity is a blessing. Can we afford it?

Life expectancy has increased by 15 years since 1940.¹ This is due to several factors, including lower infant mortality and better medical procedures – particularly around heart disease.

While total life expectancy is usually what makes the headlines, in retirement planning, we are most interested in a slightly different figure: life expectancy at 65. This number provides a rough estimate of how long someone could expect to live in retirement. In other words – how many years of spending will their retirement savings need to support. And, like total life expectancy, life expectancy at 65 is also increasing from about 13 years to 20 years.

If that seven-year jump sounds significant, that’s because it is. And it may lead you to wonder: Are people simply retiring for longer? Or are they perhaps working longer, instead? This is a point that often gets muddled – but it’s worth clarifying.

Commonly, we hear from clients and others that it feels like people are working longer. But, when we look at the data, it’s a different story. While there is a cohort of Americans working longer, most Americans are working fewer years today than they did in 1940. The chart below tracks this shift over time.

In 1940, the average retirement age was 70. This meant that retirement last about 8 years. Contrast that with recent trends. While over 70% of workers expect to retire at 65 or older, only 30% actually do. As of 2015, the average retirement age was 62 years old. That can translate to a 23-year retirement.

So, in the span of about two generations, we’ve nearly tripled the length of retirement. That’s a seismic shift. And one we should examine through both a social and financial lens.

What’s driving this trend?

We’re often quick to label early retirement as a “good” or “bad” thing. In reality, though, there are many different drivers of early retirement. Best case scenario, a worker may retire early because they want to and because they know they can afford to support their spending needs for a longer period of time.

Sadly, this is not the case for many Americans, however. In fact, in a 2019 survey from EBRI and Greenwald & Associates, over 70% of workers cited health reasons or corporate downsizing as the biggest contributor to early retirement. Other commonly given reasons are described in the chart below.

We raise this point for two reasons: First, to dispel any notions of “laziness” being a primary factor; and second, to better understand the circumstances people face so we can build solutions that are attuned to their needs.

What can you do?

If you are early- or mid-career, it is all about savings, time, and growth. Save more and stay invested in a diversified portfolio. Time and compounding are on your side. If you have access to a corporate 401(k)-type plan, make sure you are maximizing your savings rate to hit your company match (if you have one).

If you are late-career, keep saving. If you can work longer, it’s something to consider – if only for the financial benefit. Deferring Social Security – even by just one year – can have a big impact on retirement spending. This tool from the Consumer Financial Protection Bureau can help you model what a “big impact” could mean in your case.

For those nearing or in retirement, you may be trying to understand how to spend, but not overspend, your nest egg. Tools like this one from the LifePath® team use capital market assumptions and mortality tables to help retirees estimate their spending potential.

Let’s end this blog where we started: Longevity is a blessing. But it shouldn’t be a luxury for the few. Understand there are things you can do today that will help you live a comfortable retirement tomorrow.