First, you were supposed to die at 85. Then 90. Now 95 and even 100 are common defaults when financial planners tell people how much to save for retirement.
Except that’s nuts.
In the U.S., the typical man at age 65 is expected to live another 18 years. The typical woman, about 20. Yet many financial planners contend we should save as if we’re all going to be centenarians.
Investment companies want as much of our money as possible, so it makes sense for them to promote the idea that all or even most of us should aim for triple-digit ages and save accordingly. Plus, financial advisers don’t want to get sued, either by their elderly clients or the children who have to take them in when the old folks run out of cash.
Some saving is essential. Obviously. But saving for a retirement that ends at age 100 means you’ll need a nest egg that’s about 40 percent larger than what you’d need for a normal life expectancy.
Working longer, saving more or planning to spend less in retirement are the typical prescriptions when people aren’t saving enough. But there are a few other ways to help insulate yourself in case you live longer than you plan for:
- Put off claiming Social Security. This means a bigger benefit from an income stream that you can’t outlive. Your check will be about one-third larger if you wait until at least your full retirement age (currently 66, rising to 67 for those born in 1960 and after) instead of starting at 62. Delay until 70, and your benefit would be more than 75 percent higher than at 62.
- Consider an annuity. You give an insurance company a chunk of money and get a stream of monthly checks that can last for life. A 65-year-old man could buy a $100,000 immediate annuity, where payments start right away, and get about $530 a month without inflation protection, or around $380 with increases tied to the Consumer Price Index, according to ImmediateAnnuities.com, an annuity marketplace. Another option is a longevity annuity, where you hand over the money but payments don’t kick in until a later age, often 85.
- Investigate reverse mortgages. You can turn your home equity into cash, but you don’t have to repay the loan until you die, sell or move out. You could set up a reverse mortgage line of credit that you would only use if markets tanked, to give your investments time to recover. Or you could keep a reverse mortgage as your last-resort option, turning to it after you’ve exhausted your other assets.