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How long will you be retired?
Few questions matter more to a worker saving for the future or to a new retiree. Yet few questions are harder to answer.
Sure, many of us can control the start date for our retirement. But the end date — how long we will live — can’t be predicted with any certainty. And that means we can’t estimate the number of years we’ll need retirement income, the amount of savings we’ll need to fund that income, and what lifestyle and extra perks we can enjoy with those savings.
“Longevity risk — the risk of running out of assets before you run out of time — is one of the things retirees fear most,” says Wade D. Pfau, codirector of the American College of Financial Services Center for Retirement Income. “A long life is a great outcome, but it brings a large financial burden.”
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Planning for that burden is critical. Fortunately, you can get valuable tools online to provide a range of estimates for your life expectancy (and, in some cases, your combined longevity with your spouse). We’ll show you how to use those tools so you can prepare for a long retirement.
Why it matters
Retirement savers start with one advantage: Social Security. The program is almost universal and is designed to provide automatic longevity protection — benefits for life, indexed to inflation. For many lower-income workers, Social Security will replace a large share of their employment income.
Traditional pensions also can provide lifetime income, although usually without inflation protection. But they’re disappearing, outside of government employment.
Even with these sources of protected lifetime income, life expectancy matters. Retirees who can afford to defer claiming Social Security to as late as age 70 can get greater lifetime benefits, but only if they live long enough. (The break-even age, when larger monthly checks make up for the benefits forgone by deferring to age 70, is usually between 80 and 85.) And with a pension, couples need to decide whether to give up some current income in favor of survivor benefits, another decision driven in part by longevity.
But the longevity challenge is most important for higher-income workers who’ll depend on their investments for their retirement income. For them it’s critical to have a firm handle on how long those investments must last to sustain them.