Planning Properly for the "New Longevity" - longer life expectancy - Brief Article

USA Today (Society for the Advancement of Education), August, 2000

Americans who were born at the end of the 20th century are likely to live at least 30 years longer than those born at its start. This has resulted in people living longer in retirement than they or their financial advisors may be planning properly for.

What is changing so rapidly--more so than many people realize--is what Michael K. Stein, author of The Prosperous Retirement, calls the "new longevity." Longevity is the expected remaining life span of someone who reaches a particular age, such as 65. Not only has longevity been increasing for those who reach age 65, it is accelerating more rapidly.

According to Stein, the rate of change in the longevity of older Americans (65 or older) increased a modest .01% a year in the early decades of the 20th century. That rate of change jumped tenfold by the end of the century, to one percent a year. He believes that, "in the first decades of the 21st century, the rate of change is likely to approach 1.5% a year."

What are the consequences of this acceleration for retirement planning? Stein gives the example of people who plan to retire in 2010 with what at that time might be a 20-year life expectancy. They may have invested during their working years and budgeted withdrawals in their retirement years based on that 20-year expectancy. If Stein's estimate proves accurate, though, that longevity would increase 1.5% a year over those 20 years. Thus, they would live 26 years, not 20. If they and their advisors had not planned for that extra six years, such as by investing more or perhaps delaying retirement, they run the risk of draining their nest egg before death.

Another important factor that affects retirement-planning estimates is the fact that tables show average life expectancy. There is a 50% chance that a person will outlive the median expectation. People who take an interest in their future are more likely to be among that 50%, says Stein, because they are more apt to eat well, exercise, seek proper medical care, and take other steps to maintain their health.

Moreover, life expectancy and longevity tables are built on past results. They can't look forward because they can't predict what medical advances or other health-related concerns might occur that would extend longevity even more. These factors clearly suggest that "people have to plan to live longer than they think," Stein emphasizes. They and their advisors must look carefully at traditional retirement assumptions, plan accordingly, and carefully monitor their retirement strategies as they grow older. Especially important is planning for the "black cloud" of huge medical and nursing care costs which increase as clients live longer.