When it comes to retirement planning, you have to make a lot of educated guesses—how much income you’ll need, what your portfolio will earn. But the most crucial unknown is how long you’ll live, and how many years you have to stretch out your savings.
Lifespans have been steadily increasing, thanks primarily to better health care and nutrition. The Society of Actuaries, which creates mortality tables for pension funds and financial services firms, recently announced plans to revise its numbers—extending the average lifespan for a 65-year-old to 88, vs. 86 in 2002.
Some demographic groups have benefited more than others. Those with college degrees, for example, typically live two to three years longer than average, says Jay Olshansky, professor of public health at the University of Illinois. “Educated Americans tend to have more wealth and better access to health care,” he says.
Your own lifespan will depend on more than a college degree. Your family history, how often you exercise, and whether you smoke all come into play. For an estimate, try the calculator at livingto100.com. Even if you aren’t headed for the century mark, you need to make your money last as long as you do. These moves can help:
Aim far, within reason. If you’re healthy and have long-lived parents, figure on living longer than average. That may seem daunting once you click on a retirement calculator—getting to 95 with a 90% likelihood of maintaining your income requires serious saving. Don’t let that discourage you. Achieving a 90% success rate often means passing unspent wealth to heirs, says Michael Kitces, director of planning research at Pinnacle Advisory Group. In the event you fall short, cutting back modestly may not be a hardship since seniors tend to spend less as they age. “Be conservative about your longevity, but don’t overdo it,” says Kitces.
Cover the basics. Putting some of your portfolio in an immediate annuity will give you a regular stream of payments throughout your lifetime. Many advisers suggest using them, along with Social Security, to cover your essential expenses. Recently a 65-year-old man could purchase a $100,000 annuity paying 6.6%, according to ImmediateAnnuities .com. Those rates, while low historically, outshine bond yields. “It makes sense to buy now if you need an annuity,” says Joe Tomlinson, a financial adviser in Greenville, Maine. “If you hang on to your cash and wait for a rate hike, you’ll be earning zero percent, so you probably won’t come out ahead.”
Take a walk. When you stay healthy and active, studies show, you’re far more likely to avoid expensive medical problems, not to mention long-term-care costs. As a recent article in JAMA found, people in their seventies and eighties who exercised regularly, including walking and weight training, were 18% less likely to suffer physical infirmities and nearly 30% less likely to become permanently disabled. A fit old age not only saves money. It’s more fun too.