Many seniors are finding that their retirement plan needs to change due to longer life expectancy. According to the Centers for Disease Control (CDC), a person who reaches age 65 can expect to live another 19 years, on average. Here are the three biggest impacts a long life can have on retirement:
Many older people are now working well past the traditional retirement age of 65, or are working part-time after retirement. Staying employed allows seniors to feel more productive and active, and can help grow their nest eggs. The prospect of a 20-year retirement also means retirees will simply need more money to stay comfortable. But experts say you shouldn’t wait too long to give up your job. If you have plans to travel, for example, you should do that when you’re healthy. Prolonging retirement vacation dreams means taking a chance that your body won’t be up for the travel. Keeping a job longer may affect your health care coverage as well. If you’re 65 and don’t enroll in Medicare, there may be financial penalties for enrolling later. The penalty amount could go up 10% for every 12-month period after you were eligible.
Health Care Costs
Longer life expectancies mean higher costs for health care and long-term care. Fidelity estimates a 65-year-old couple retiring in 2018 will need $280,000 to cover health and medical care in retirement, so it is critical that you start planning. Make sure your retirement savings can cover health care and consider starting a health savings account (HSA) to offset costs. Purchasing long-term care insurance is another option to think about. Ongoing long-term care is a significant health care cost. Many retirees will rely on Medicare for their health care coverage, but it does not cover out-of-pocket expenses like home health care, assisted living or a nursing home. Unfortunately, many insurance companies have begun to raise their rates due to increased longevity, so expect this trend to continue in the future when looking at long-term care options.
Retirement Fund Spending
A long retirement seems like a dream on paper – more time to relax, travel, enjoy hobbies and spend time with family and friends. But a longer retirement also means you’ll need a lot more money than you might anticipate. In general, pulling out 4 percent of your retirement funds each year is practiced and safe amount to spend. But that rule was created when people had shorter life expectancies. It may not work if you live 20 years beyond retirement age. So, it’s a good idea to rethink how much money you plan to take from your retirement funds each year. If you need help, talk to a financial professional about the best ways to withdraw money in your golden years.