The fact that Americans are living longer has made the usual approach to financial planning incomplete, according to a new study of nearly 1,200 people and 10 focus groups by MIT AgeLab and Transamerica. It concludes that the traditional three-part plan of education, work, and retirement and the goal of ensuring that people have enough money to live comfortably in retirement fails to take into account the increasing longevity of Americans. Instead, the researchers behind the report advocate focusing on three factors: well-being, work, and finances as the three key stages of adulthood.
Americans are living longer than their grandparents and great-grandparents, with average life expectancy rising from 68 years in 1950 to nearly 79 years as of 2009. With these longer life spans, retirements have also become longer. Whereas a man who retired in 1970 lived less than 13 years into retirement, the average length of retirement for men in 2020 was about 19 years. Someone who turns 65 in 2023 has about a 50% chance of living two more decades.
This trend is expected to continue. While there were approximately 92,000 octogenarians in the US as of 2020, that figure is expected to nearly triple in less than 25 years, for a projected total of 270,000 Americans over the age of 100 by 2045. In other words, if they stop working at age 67, they can spend a maximum of 33 years in retirement.
To get an idea of how long 33 years can be, consider that in 1990 George HW Bush was president, Madonna was at the top of the music charts and the No. 1 TV show was “Cheers.”
“Although Americans are generally optimistic about their future, they may not fully appreciate how their financial needs, priorities, and life style will change over time,” said Dr. Joseph Coughlin, director of the MIT AgeLab. How much the circumstances will change. “More than ever, planning for longevity means understanding what matters most at each stage of adulthood, finding balance and supporting priorities with behaviors and actions that lead to a better future.”
How does longevity affect financial planning?
“The way we look at our lives and the way we work is changing,” said Phil Ekman, president of Workplace Solutions at Transamerica. “People want flexibility and choice in all parts of their lives, at work and at home.”
Traditional financial planning, by today’s standards, was built on a comparatively short retirement horizon. This meant the focus was on leisure, building up enough of a nest egg to fund what now looks like a comparatively short retirement. But now that the retirement age has extended considerably, this stage of life is dynamic rather than just focused on leisure.
For Americans of the 60s and 70s
The report concluded, “The aging phase is when consumers may begin to celebrate the goals they were saving for, such as dream vacations or more time to spend with family, but still There is a time when many people must be prepared to live for many more decades.” ,
This means retirees can use financial advisors as coaches to understand the complexity of this stage of life. They may also be able to help them understand different ways to “prioritize social, emotional and physical well-being relative to financial or work-related goals over the coming 10 years of your life,” according to the report.
For Americans ages 40 and 50
Middle-aged adults face complex and emotional challenges, from attempting to advance in their careers to caring for children and parents. With such a range of challenges, it’s not surprising that this group reported the lowest exercise rates and said they ate healthy foods less often than any other age group. One implication is that people in this group should work with their financial advisors to arrange priorities to make sure they are taking care of themselves financially and in other ways.
“Financial professionals can serve as agenda setters for clients in midlife, helping them anticipate
Future needs, challenges and celebrations,” the report said. “For example, financial professionals can support clients who are currently in a caring role, as well as help them anticipate a time in later life when they may need care themselves “
For Americans in their 20s and 30s
The study also found that this group is more motivated to invest in their well-being, establish themselves in their careers in the short and long term, and start saving for major financial milestones.
Young adults can use the advice of financial advisors to adopt new habits, routines, and approaches that will prepare them for both the near and distant future. They should also work with financial advisors to build an adequate emergency fund and build their net worth.
Retirement is not just about money. Longer life spans mean retirement will be far more dynamic than our parents’ and grandparents’ focus on leisure. Increasingly, it’s more about overall well-being. This is something that involves a substantial amount of investment, but it is also increasingly about relationships, personal goals, health and business opportunities. The report finds that receiving financial advice at every stage of adulthood is vital to a happy retirement.
Tips on Retirement
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