Does Living Longer Mean Retiring Later?

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  • The average lifespan for a baby born in the United States in 2021 is now 76 years.
  • You may want to plan to work longer, as you'll be able to delay taking Social Security and save more for retirement.
  • Think about how much income you'll need in retirement, and consider working with a financial advisor to plan for taxes and investments to fund your retirement.

No one wants to outlive their money.

It sometimes seems as if there's no end of planning and saving for the various stages of life. Retirement is no different, but over the last few decades, the expected retirement years for a typical American have changed, thanks to increasing lifespans.

Unfortunately, we have seen a drop in the average expected lifespan (from 79 for a baby born in 2019 to 76 for one born in 2021) according to the National Center for Health Statistics, largely due to COVID-19 and the opioid epidemic. There's also variation in life expectancy based on sex, race/ethnicity, income/wealth, current age, and location, but overall, we've come a long way. The average life expectancy in 1900, for example, was just 47.

Despite demographic variation and health challenges, it stands to reason that many Americans will have to plan and save money for a longer retirement than ever, be it by choice or necessity. Is the solution to a longer lifespan a longer career? Here's what to consider.

Is it worth it to work longer?

If you're not even close to retirement age yet but are already dreaming of it, you may not want to think about tacking on even more years of working. But while there's no way to know how long you'll live, the last thing you should want is to retire without enough money to sustain yourself for the rest of your life. With that in mind, planning to continue your career for longer might be a good idea. If you're in a very physical line of work, you might consider transitioning to something less demanding as you get older.

There are many advantages to this mindset:

  • You can contribute to an employer-sponsored retirement plan, like a 401(k), for longer (contribute at least as much as you need to claim employer matching funds), and contribute to an IRA account alongside it to build yourself the largest nest egg possible.
  • Extra income can work for you if you put it into a brokerage account or a high-yield savings account, and it'll have more time to grow before you need it.
  • You can delay taking Social Security up until age 70, and end up with a higher benefit amount.
  • You can plan to work more when you're younger and healthier and ease off as you get older, perhaps by dropping to contract or part-time work.

In addition to delaying your retirement, there are other things to consider to ensure you don't outlive your money when the time comes to stop working.

Take time to plan and save for the retirement you want

While it may seem daunting, it's worth sitting down and estimating how much money you'll need in retirement. A typical rule of thumb is that a retiree needs about 80% of their working income per year to keep up the same standard of living, and would save 25 times that. Subtract your expected Social Security income (which can be found on the SSA website) and any other money you expect to receive (such as from a pension, if you have one), from that 80% figure to land on your expected annual retirement income to be made up through savings and investments.

Another consideration you can't forget about is taxes. Retirement investment accounts, like IRAs and 401(k)s, can be tax-advantaged in different ways. With a traditional 401(k) or IRA, the money is taxed at withdrawal, reducing your taxable income now. But with a Roth IRA, you fund it using taxed dollars, meaning you don't pay taxes on your withdrawals. So it's worth thinking about whether you expect to be in a higher or lower tax bracket in retirement, and plan accordingly. Whatever you decide, the more years you're investing (especially if you're working longer), the more opportunity you'll have to benefit from compound interest.

There's no way to know how long you'll live, but people are generally living longer than just about any other time. If you want to have a comfortable and happy retirement, it's worth thinking about all these factors now, and perhaps discussing them with a financial advisor. Also, focus on taking care of your health and finances while you're young, as it'll be a lot harder as you get older.

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