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What's your retirement plan for living longer?

Kelly Kowalski, Cliff Noreen, and Bronwyn Shinnick

Posted on March 21, 2023

Our executives and experts team up to write educational articles, covering a variety of financial topics such as life planning, college savings, and retirement.
Longevity and retirement planning
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Look at how people are living longer and the implications that such increased longevity has for costs, especially health care.

List likely retirement income sources and the pressure some of them, particularly Social Security, are under.

Explore what steps are possible to catch-up on retirement income and find other benefit sources.

Americans today live longer than previous generations, and that added longevity is putting stress on traditional retirement plans and financial strategies.

On average, men and women who reach the standard retirement age of 65 can anticipate living into their eighties, according to the Social Security Administration.1

Many might not think living longer sounds like a problem — it’s safe to assume most want to. But a long life is only a dream come true if the quality of that life is high from beginning to end. And quality of life is often dependent on money and means.

Unfortunately, when folks regularly live into their 80s, 90s and beyond, old philosophies on retirement financial planning go out the window.

How does a longer life impact retirement spending, costs?

After you retire, you’ll hopefully begin receiving regular payments withdrawn from the savings you worked to accrue during your younger years, either through 401(k) plans, individual retirement accounts, or other savings plans. Pensions are also a possible retirement income source for some people. (Calculator: How much should I save for retirement?)

Obviously, the level of retirement income will depend on the level of savings accumulated over the years. Another factor would be how much of the nest egg is tapped on a monthly basis after retirement. Market performance may also be a factor, depending on the type of retirement investments involved. Also, many people plan on combining their own savings with Social Security benefits.

However, a lack of positive Social Security cost of living adjustments could plateau a substantial portion of a retiree’s savings plan. In 2015, for example, Social Security recipients did not see a cost-of-living-adjustment increase. Although this is only one of a handful of times COLA stagnation has occurred in the last 40 years,2 it may be an indicator that those approaching retirement age ought not to rely too heavily on Social Security as the generation before. (Related: The coming retirement crisis)

There are also ongoing debates about the financial soundness and future of the Social Security program. Indeed, in its 2022 Trustees Report, the Social Security Administration reiterated its ongoing concern that the trust fund paying out Social Security benefits may be depleted by the mid-2030s unless changes are made to the current system; such changes, should they occur, may have an effect on the level of individual payments.

Beyond questions about how much money a retiree is likely to receive, there is the prospect of increased costs in retirement and how those costs may be exacerbated by longevity.

Retirees spend considerably on health care. No surprise there — advanced age tends to come with increased health risks. What is surprising, however, is how much health care costs balloon as retirees get older. One study from HealthView Insights found lifetime health costs for most couples retiring in 2021 can range from $156,208 to $1,022,997.3

Longevity action plan

Luckily, there’s still time to adjust how you save to plan effectively for these potential financial issues. The options include taking advantage of catch-up provisions to maximize tax-advantaged savings options, saving more beyond retirement accounts, and delaying retirement. (Related: Retirement catch-up)

The first thing retirement-worried investors should look at is whether to make catch-up contributions. These are extra contributions to tax-advantaged retirement accounts that older savers can make without exceeding IRS limits. Essentially, it’s a way of depositing more money now as retirement approaches to draw from a bigger pool later.

This is not always ideal, as many people don’t have the flexibility or desire to compromise comfort today for comfort tomorrow. Besides, according to the Economic Growth and Tax Relief Reconciliation Act of 2001, which established catch-up contributions, only those older than 50 years of age can take advantage4. What about everyone else? (Related: Retirement plan contribution limits)

Try reining in your budget now — if you learn to spend less before you retire, it can be easier to manage your day-to-day finances after you take the plunge. Another low-risk alternative to catch-up contributions would be to peruse your tax-deferred funds to ensure you’ve maximized opportunities there. Who knows? You might be able to capitalize on something you missed earlier in life.

Explore additional income and benefit sources

Other savings and investment options — real estate or commodities for example — may yield higher financial rewards, but they also include their fair share of risks. Sometimes investments can backfire just as easily as they can deliver.

Because of the longevity concern, many savers and investors are looking at annuities, which can provide guaranteed lifetime income. They can be funded either through personal savings or a rollover of retirement funds. But different annuities offer different types of advantages and drawbacks. (Related: Does an annuity fit your retirement goals?)

Given the variety of savings plans available and the building questions about longevity, many people opt to consult a financial professional to sort out what choices might best fit their personal circumstances.

Of course, there’s the option of delaying retirement in order to prepare for a longer life span. Delaying your retirement by three years from age 62 to 65 can boost your assets meaningfully, thanks to the combination of making extra contributions to your employer-sponsored retirement plan, not taking withdrawals, and allowing your funds more time to grow.

Also, in regard to Social Security retirement benefits, it’s important to understand that monthly benefits differ substantially based on when you start receiving them and the filing option you choose. If you were born in 1943 or later, for every year you postpone collecting benefits beyond your full retirement age (typically 66 or 67), you can earn an annual delayed retirement credit of up to 8 percent. That’s a big bump in benefits every year up to age 70. (Related: When to file for Social Security?)

Unfortunately, working longer isn’t always an option for many people due to the effects of age or the job market. This reinforces the need to examine options now and take what steps are necessary to ensure a financially comfortable life in the growing number of later years for most Americans.

Learn more from MassMutual...

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1 Social Security Administration, “Life Expectancy Calculator,” 2019.
2 Social Security Administration, “Cost of Living Adjustments, 1975-2020,” 2020.
3 HealthView Insights, “2021 Retirement Health Care Costs Data Report,” 2020.
4 U.S. Congress, H.R. 1836 – Economic Growth and Tax Relief Reconciliation Act of 2001, 2001-2002.

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