Invest Retirement

Retirement Income Planning to Protect Living Longer and Healthier

Jean Chatzky  |  August 12, 2019

When we schedule a visit with our financial advisor – which we do a couple of times a year – my husband and I know that we can count on a round of one of our favorite games. It’s called: How long are we going to live? And the inevitable answer is: Longer than we ever expected.  

Note: This story is sponsored by The Alliance for Lifetime Income.

In just the past three decades, life expectancy rates for men in this country have jumped from 70 to 79, and for women from 77 to 83.  But here’s the thing that many people don’t understand about longevity. The longer you live, the longer you’re going to live. Today, research tells us that the average 65-year-old will live until age 84. But that means half of all 65-year-olds will hit 84 and keep on going. One in four will pass age 90. One in ten will pass 95. The number of Americans who are age 100 or older has gone up 2,200% since 1950.  

And despite a few little bobbles along the way, those numbers don’t seem to be slowing their climb. I keep a Time Magazine cover from February 2015 at the ready for demonstration purposes. On it is an angelic baby and the headline declares it likely that this child could live to be 142 years old. That’s what can happen when curing cancer and other diseases that take too many down too fast becomes your moonshot. That’s what can happen when tech companies like Google turn their research teams toward solving the problem of death.

Is this a good thing? Sometimes when I’m out giving a talk, I will ask the crowd that question. What I get in response is always the same: nervous laughter. Because living an extra 10, 20 or more years when you’re not sure you’re going to be able to stay healthy or have enough income that will last for today’s life expectancies is incredibly daunting.

I explored these issues in my book, AgeProof: Living Longer Without Running Out of Money or Breaking a Hip, co-authored by Dr. Michael Roizen of the Cleveland Clinic. We joined forces after writing a slew of books in our primary domain (health for him, money for me) because we realized that one without the other doesn’t cut it anymore. Not if we are truly in it for the long term. And one of the things you need to do is preserve both so that you have enough money to do those things like covering your Medicare premiums, mortgage, utilities, and other monthly expenses in order to maintain a comfortable (if not lavish) lifestyle. One thing that helps, research tells us, is having an ongoing source of protected monthly income to last throughout retirement. 

There are only three sources of protected lifetime income available to us – Social Security, pensions (only 17% of us have access to one today) and annuities. Social Security only covers about 40% of our pre-retirement income, leaving an income gap to fill. According to a study by the Alliance for Lifetime Income, 74 percent of people who have a pension or annuity in addition to Social Security feel confident that their retirement savings and income will last throughout their lives – compared with 33 percent of those without this additional lifetime income. 

One thing that might help you determine whether searching for another source of income that will last throughout your life is a must-do is taking a look at the specific risks that might arise during retirement. Here are four of the most important to consider:

  1. Unreimbursed healthcare costs.  For the past 16 years, Fidelity Investments has conducted a piece of research to isolate the amount of money a 65-year-old couple will need to cover healthcare costs in retirement that won’t be covered by Medicare. It’s a number, not surprisingly, that has gone up and up and up. The most recent tally: $280,000, which works out to a little over $5,000 per person per year. “It’s not well understood by the average retiree,” says Michael Finke, Dean and Chief Academic Officer of The American College of Financial Services and an Alliance Research Fellow. “We are all covered by Medicare, but Medicare only covers a portion of our healthcare costs.” A big piece of what’s not covered? Medicare premiums themselves.
  2. Long-term care costs.  The $280,000 Fidelity tally doesn’t include the cost of long-term care. And Finke notes, unbeknownst to many, Medicare doesn’t cover much of this either. It steps up for the first 100 days of care. Then, you’re on your own. What are the odds you’re going to have a significant long-term care stay? As Finke explains, they’re not high. “Some 98% of Americans are not going to have a hugely expensive long-term care expense.  But 2 percent are going to have an extended stay. It’s a significant social problem.” You don’t to find yourself in that group without funds.
  3. Longevity Risk. Finally, there’s life itself. Life? Yes. A much longer life simply costs more money to sustain it – again comfortably, not lavishly. For these purposes, Finke and other experts often suggest taking some money upon retirement and buying what’s called a deferred income annuity (often referred to as longevity insurance.) Essentially, you take a sum of money and invest it to produce a paycheck that you don’t tap into until typically, decades later. Because you’re giving it time to grow, a small sum of money can be used to produce a sizable continuing income. “It’s the one single financial product that the most informed scientists think is a no-brainer and yet, it hasn’t gotten a lot of traction.” Maybe it’s time.
  4. Market Risk. With the shift from pensions to 401(k)s and other retirement plans, today many of us have our savings invested in the markets. Financial advisors tell us we need to save and accumulate as much as we can for retirement, and they’re absolutely right. We can always debate how much we need to save, but more important is understanding and planning for how much money we’ll need each month in retirement, and how much of that money we can always count on to be there. Talking with a financial advisor about how to handle that is a smart move. Maybe you’ll find yourself playing a version of my little game as well.  

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