How Longer Lifetimes Can Affect Your Financial Plans

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.