As the baby boom generation enters retirement, there is, for many, a relatively new area of risk that needs to be considered in their retirement plans...
Americans are simply living longer, and for the first time a slight majority of soon- to- be retirees have at least one living parent. According to a recent study the number of adult children financially helping a retired parent has more than tripled in the past 15 years.
Here are three primary longevity considerations in retirement planning:
1. Baby Boomers are Going to Live Longer - The projected life expectancy for women turning 65 this year is 88.8, up from 85.4 just ten years ago. Men are projected to live to age 86.6, up from 82.7.
The problem for many retirees and soon-to-be retirees is that they are not planning to live this long. A recent study found that retirees turning 65 this year are estimating they'll live four years less than the new longevity averages, and that is after they've been shown the updated longevity figures. Only 31% of those surveyed felt they would live as long as the new averages.
Clearly, a lot of people are not accepting and preparing for the reality that they'll live longer than the previous generation. From a retirement planning perspective longevity is a common area for people to express doubt. The denial associated with longevity is likely related to a fear most of us have (consciously or not) that truly old age means poor health, mental decline, and a loss of our independence.
From a planning perspective it's vitally important for people to not underestimate life expectancy. This mistake in retirement planning causes an exaggerated sense of financial security that can lead to under-saving and overspending.
2. Retirees Are Living Longer - The generation that retired 20 years ago and planned to live to their early 80s are living long after that. The good news is they are enjoying much better health than previous generations, but the bad news is that many of them are outliving, or at risk of outliving their financial resources.
What this means for today's baby boom retirees is that their parents may end up needing their financial help, and if they aren't ready for that possibility the potential burden could cause a significant problem to their financial future. Given the advances in medical treatment, the longevity trend is likely to continue to accelerate at an even greater rate in the coming decade.
The best time to address financial issues with aging parents is when they are still healthy. The key is to make sure your parents have a current retirement and estate plan. If they are winging it in these areas the result could be devastating for all involved. If that is the case it's vitally important to comprehensively address it in their plan and/or yours.
3. An Elder Plan is Essential - Ideally your parents should live (or be ready to live) in a residence that is easy to navigate and maintain. It's also important to have someone living close by that could provide immediate or extended assistance if necessary.
Discuss this topic with parents and other family members when everyone is still able enough to make changes if necessary. A good eldercare plan is much more than just your parents plan – it's a family plan. And for that reason, it's important that it's workable for everyone involved.
Initiating this conversation can be a bit awkward at first, but it's an absolutely crucial step in planning your personal and financial life. As uncomfortable as it might be, the alternative could be far worse.
