Can You Afford to Live to 100?

 

Today’s life expectancies hover just below eighty years, and if you reach the milestone of seventy they jump to the mid eighties. Due to advances in medicine and healthier lifestyles, reaching your nineties or even 100 is more realistic than ever. That's good news for those of us staring down into our seventh decade. But there is a dark shadow cast over this good news: can we afford to live that long?

According to the Alliance for Lifetime Income's Cyrus Bamji, chief strategy and communications officer, one of their recent studies revealed that almost half of those between sixty-one and sixty-five say that they don’t think that their savings will last their lifetimes. Nearly one third are not confident that they will have enough income to cover basic expenses. Forty percent of Americans rely entirely on Social Security for their retirement income.

There are three basic reasons for this alarming situation.

People simple have not saved enough for retirement. This is not to be dismissed simply as millennials spending money on avocado toast and gourmet coffee. In fact, Gen Xers are saving more for retirement than their predecessors. But many people struggle to pay the rent and buy food, let alone set money aside for their future. And even those who are saving aren't saving enough. The average American retires with just over $65,000 in savings. Many have a significant amount of equity in their homes, which will be a huge help, but not enough to close the gap between what they have and what they will need. And for younger people, home ownership seems increasingly out of reach.

This leads to the second problem, which is that nearly half of retired Americans are financially supporting children eighteen to twenty-one and 30 percent are supporting adult children twenty-two to thirty, all from their retirement funds.

Finally, there is the cost of healthcare.  Health care costs make up 10% to 15% of the average older household’s spending. But what you will spend on health care costs in retirement could be less or more — potentially a lot more. A 65-year-old woman typically could expect to pay $3,300 to $7,700 annually for premiums and out-of-pocket medical, dental and vision costs, according to a study by Vanguard Research and Mercer Health and Benefits. But her costs could top $22,000 in some scenarios, the researchers found.

Most financial advisors say that a comfortable retirement should aim to sustain an income of about 80% of your pre-retirement income. Most real people are nowhere close to that. The prospect is so dismal that many people are simply ignoring the problem, the worst possible thing they can do.

This is a problem at a societal level and requires a societal solution. How likely is that given our governments bickering and fixation on building walls. Things like universal wellness systems to promote avoiding illness instead of treating it after it occurs, creative housing solutions and practical education are things that must be tackled on a societal level. 

But what can you do as an individual? A few things. And the sooner you get started the more impact your efforts will have.

Adopt a healthier lifestyle. It's obvious advice, but it bears repeating. If you make an effort to stay active and eat healthy, you'll likely spend less on health care than someone who ignores diet and exercise and has other unhealthy habits such as smoking.

Save more.  Generally speaking, the sooner you start saving for retirement, the better off you’ll be. Even small amounts set aside regularly can amount to a large nest egg thanks to the miracle of compound interest. If possible, increase or max out contributions to your employee savings plan. If that is not an option for you, send yourself a bill every month to pay alongside your mortgage. Become familiar with the many ways that you can tap the equity in your property as you age so that you are not rushed into a bad decision when you are faced with a choice.

Start to live like you are already retired. An easy way to boost your savings is to cut back on your spending. Start by envisioning your retirement and look for costs to cut. If that vision involves downsizing your home or cooking healthy meals at home, begin making those changes now. Consider purchasing a more economical car. These changes will save you money right away. They will also make the transition into retirement easier.

Have an honest talk with your children about money. This may be an extremely uncomfortable conversation for both you and your children, making it easy to put off or avoid altogether. Don't.

There are no easy solutions to a problem this big when you are already in the middle of the problem, but not dealing with it only allows it to become bigger and burdens our children and grandchildren. Healthy aging is not only about your physical health but your financial and emotional health as well. It is time we moved this problem out of the shadows and start to address it.