It’s a well-known fact that the average human lifespan is longer today than it has been in past generations. I’ve written about it in past blog posts, but there are various reasons for that, ranging from advancements in medicine to a better understanding of our diets and health. The increase in average lifespans is not only having an impact on the world population, but is also having an impact on financial and retirement planning. Of the many things you need to think about when planning for retirement or your financial future, you probably haven’t considered the impact that longer lives could have on your savings and finances. For example, if you retire at the traditional retirement age of 65, there’s a good chance that you may live another 20-25 years in retirement. That’s a long time and will take some serious planning, especially if you don’t plan on having any earned income during that period. As many today are doing, often for reasons not involving longer lifespans, you may even consider working past 65 and well into your 70s. While the impact on your nest egg is what most often gets mentioned in discussions about living longer, there are other ways you could be affected by people living to be an average older age than previous generations. One area is how you will fund your nest egg. It’s not uncommon for Americans to rely on an inheritance to help bolster their nest eggs. However, with parents (or grandparents) living longer and potentially dipping into their own nest eggs for longer periods of time, those inheritances may turn out to be smaller than expected, or even non-existent. Thus, it’s it’s becoming more likely that late Generation-Xers, Millennials, and future generations probably won’t plan for big inheritances like past generations did. However, these current and future generations also might plan on working longer and waiting until much later in life to tap into retirement funds. This view is already being reflected in legislation involving retirement account today. An good example is the SECURE legislation that Congress is currently working on (it’s a rare piece of bipartisan-supported legislation) which will allow people who are currently working to push back taking required minimum distributions (RMDs) and allow for small businesses to work together to offer retirement benefits to their employees. The fact that there is legislation allowing people to push back RMDs is a sign that even Congress is recognizing that changes in lifespans are affecting retirement–and you should too! So, the next time you look at your retirement accounts, think about how a longer lifespan might affecting things, both from a saving and a consumption standpoint.
In the past, I’ve talked about reasons why you may want to have multiple retirement accounts and how you may end up having multiple places from which you draw your money in retirement. While I’ve mostly focused on IRAs and 401(k)–as well as other employer retirement accounts–I haven’t really talked about another important retirement account you will want to have, a Health Spending Account (HSA). You’re probably familiar with what an HSA is through your employer benefits as it is commonly offered by many employers as a part of health insurance benefits these days. HSAs allow you to save for future medical expenses as well as reduce your taxable income. If you are on the younger side, one of the biggest draws to an HSA is the tax advantages they offer; HSA contributions are tax-deductible, the money in the account grows tax free, and the money can come out tax free. Given that there are questions as to how long Social Security as well as how Medicare/Medicaid may look in the future, it’s important that you take steps to save for medical costs in the future, especially if you fall within the Generation X or Millennial age brackets. HSAs can be an efficient and effective way to do so. Furthermore, if you start and HSA, you should include it as part of your financial planning for retirement, along with any IRAs or 401(k)s you may have. If you don’t have an HSA, you may want to look into starting one during the next enrollment period for your health insurance benefits (that is if your company offers it). As for how it fits in with your retirement planning, you should speak with a certified financial planning expert if you have any specific questions.