Here’s How Many Years Retirees Should Be Financially Prepared To Live, According To New Data

04/05/2024

Retired couple- iStock-1480122682

Retirement planning is one of the most important — and potentially most daunting — things you’ll do. But even if you start preparing early in life, you might not be quite as ready for the true cost of retirement as you think.

One way to ensure you are prepared is to factor in longevity — that is, how long you expect to live after retiring. It might not be fun, and it might not be the easiest thing to talk about, but it’s essential to ensure you’re financially ready for this major phase of your life.

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So, roughly how long will you have in retirement? And how much should you be prepared to save at each stage of retirement? Here’s what the statistics — and experts — say:

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How Long People Tend to Have In Retirement

Knowing roughly how long you’ll have in retirement can help you determine your long-term budget and adjust your saving and investment goals accordingly. However, according to a recent TIAA Institute study, only around one in ten U.S. adults have a clear idea of how long retirees — specifically those around the age of 65 — tend to live, or how likely they are to live to 90 versus 70 years old.

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Based on the study, here’s how long people typically live in retirement:

A 65-year-old woman has a 40% chance of reaching the age of 90
A 65-year-old man has about a 30% chance of living to age 90
Between 5% and 10% of 65-year-old men will not live past the age of 70
Less than 5% of 65-year-old women will not live past age 70
The average 65-year-old male retiree will live until age 84 (19 years after retiring)
The average 65-year-old female retiree will live until age 87 (22 years after retiring)

You can take your expected retirement age and the averages here to determine your rough retirement longevity. But even then, it’s still wise to add in a few extra years — at least — to ensure you’re truly prepared.

Longevity “Literacy” Is Important — No Matter Your Age

For many people, longevity literacy — your understanding of how long you’re likely to live once you retire — seems more important at certain stages of life than others.

“Everyone’s situation is different, but what we often see is that it depends on where a person is in their retirement journey,” said Bryan Pinsky, president of individual retirement at Corebridge Financial. “Someone nearing or in retirement may be more inclined to connect the dots between longevity and their financial needs, than someone who is just starting out in their career or embarking on life milestones like marriage or having children, which bring a different scope of financial planning needs.”

But no matter how old — or young — you are right now, it’s never too soon to start thinking about it. Given that around 54% of Americans say it’s their goal to live to a ripe old age and enjoy at least 30 years of retirement, figuring out your finances sooner is probably better.

Many Factors Influence Longevity

When it comes to human life, no statistic will guarantee how long you’ll live. While it’s generally better to assume you’ll live a long time — if nothing else, to ensure you’re financially prepared — certain factors influence your longevity.

“Retirees should expect to live for a longer life expectancy than previous generations,” said Taylor Kovar, CFP, founder & CEO at 11 Financial. “They should consider factors such as family medical history, health habits, and healthcare accessibility.”

“Health and family history is a major factor in predicting not only lifespan but also health span, which is the length of time someone remains in good and stable health,” added Stephen Kates, CFP and principal financial analyst for Annuity.org. “General activity and overall health are intimately intertwined and anyone who remains active or hopes to remain active later in life should be planning for longevity as part of their financial plan.”

While these can serve as baseline factors, you might not want to base your longevity solely on them. After all, things can change and you could end up living far longer than you think.

Your Longevity’s Impact on Social Security

When it comes to retirement, many Americans rely on Social Security to help sustain them financially. You can start collecting benefits as early as 62, though you’ll only receive a partial amount. Or you can wait until you reach the full retirement age, which depends on the year you were born. You can also wait until you’re 70 to receive the highest benefit possible.

The good news is that you can take Social Security for as long as you live. However, the average benefit amount is $1,907 and, while Social Security generally keeps up with inflation, this might not be enough to keep you financially stable for the entirety of your retirement.

That’s why it’s important to have other resources to keep you afloat and, ideally, help you thrive during your retirement years.

Factoring in Longevity and Preparing for Retirement

There are several ways to prepare for retirement, even if you don’t know exactly how long you’ll live. Here are just a few.

Have Multiple Funds in Place

“One of the biggest risks retirees face is longevity risk — the risk of outliving our assets, said Melissa Murphy Pavone, CFP, CDFA, director of investments at Oppenheimer & Co. Inc.

So, what can you do to combat this risk?

“One possible solution is to have several emergency funds earmarked for different expenses: a standard emergency fund, a house renovation fund, and a healthcare fund,” said Pavone. “Having each of these in a high-yield savings account is a secure way to grow your money while preserving liquidity.”

Check the Benchmarks and Make Some Changes

“Regardless of how long you think you will live, you can compare yourself to benchmarks and the sums of money that are recommended you have in savings based on your current age,” said Rebecca Awram, mortgage advisor at Seniors Lending Centre. “For example, to retire at 65, people generally want around 10x their salary saved as their nest egg.”

Say, for example, you earn $100,000 a year during your working years. You’ll ideally want to have $1 million set aside for retirement. This might or might not include other assets you’ve accrued along the way.

It can also be daunting to try to save up that much, especially if you’re starting later in life, which is why Awram suggested calculating your retirement funds based on your current budget, assets, and how they’re likely to change.

“Many financial planners will recommend a 75% replacement rate to your income, meaning if you earn $100,000 annually, you will want at least $75,000 each year you are retired,” she said. “However, this may not all come from savings. Be sure to look into what Social Security you qualify for, and how much your assets, such as your home and investments, are likely to appreciate over the next decade.”

Max Out Your Borrowing Power and Retirement Contributions

When preparing for retirement, there are two things you can max out: your borrowing power and your retirement account contributions.

“Ensure you are maxing out your contribution rates to registered retirement accounts and inquire with your employer if you have a matching program,” said Awram.

Certain retirement accounts come with specific annual limits. With an IRA, for example, you can contribute up to $6,500 a year — $7,500 if you’re 50 or older.

“If you are nearing retirement, ensure you max out your borrowing power before you leave your employment and leave the steady income behind,” Awram continued. “As many loans have an income requirement, approval is much easier before you retire. A line of credit that does not incur interest until used can serve as an excellent emergency fund in retirement. It is always better to have it and not use it than to need it and not have it.”

Plan for Some Income During Retirement

“Whether you believe you have enough or not, there is value in planning for some level of income security in retirement,” said Kates. “All retirement income plans should include elements that offer flexibility, protection, and growth. The unique ratio of each element will depend on a retiree’s preferences, but all retirees should consider that their essential expenses should be covered by guaranteed income to ensure that baseline needs are met without fail.”

Your retirement income can include your Social Security or pension benefits. But it can also include supplemental annuity income and other sources or active or passive income to keep you financially stable.