The good news: A recent Harvard study found that life expectancy for 65-year-olds has increased by almost a year and a half since the early 1990s. The even better news: Today’s 65-year-olds are likely to spend nearly two more years of their remaining lives free of disabilities compared to their early-1990s counterparts, the researchers found. That’s due to improved treatments for heart disease, vision problems and other debilitating conditions that can erode quality of life.
So how can you position yourself to get the most out of a longer, healthier retirement? Here are three steps you should take:
1. Get a more accurate sense of how long you might be around. In order to better plan for what’s likely to be a longer and more active life after calling it a career, you need to have a decent idea of how much time you (and your spouse or partner, if you’re one half of a couple) might actually spend in retirement. Although life expectancy is the stat that gets the most attention, it’s actually not a very good gauge for retirement planning. The reason: Life expectancy is an average number of years a large group of people of a given age are expected to live, which means roughly half will beat the average—some people, by many years.
You can get a reasonable estimate of the probability you’ll live to various ages if you go to the Longevity Illustrator tool from the American Academy of Actuaries and the Society of Actuaries. It requires you to enter your age, sex, an assessment of your health (poor, average or excellent) and whether or not you smoke.
For example, let’s say a 65-year-old husband and 65-year-old wife indicate they are nonsmokers in average health. They’ll see that the man has a 50% chance of living another 20 years (to age 85) and a 25% chance of making it another 27 years (to age 92), while the woman has a 50-50 shot at living another 23 years (to age 88) and a 25% probability of living another 29 years (to age 94).
The tool also demonstrates that couples need to set even longer planning horizons than single individuals. In the case of this couple, for example, there’s a 50% chance that at least one of them will be around 27 more years and a 25% chance either the man or the woman will still be alive and kicking in 32 years.
Clearly, gaining a deeper understanding of just how many years you may spend in retirement can help you more accurately assess how much you can safely withdraw from your nest egg without running too high a risk of depleting it too soon. But it can also help you better set priorities for which activities you’d like to pursue and the order in which you’d like to accomplish various goals in the time you have left.
2. Do some “lifestyle planning.” Given the chance that you could spend 30 or more years in retirement—and the likelihood you may be healthy and active during much of that span—it’s all the more important that you find ways to make your time in retirement satisfying and fulfilling. That’s where lifestyle planning—essentially mapping out the specifics of how you want to live your post-career life—comes in.
Among the questions you’ll want to consider: Will you stay in your current home, downsize to a smaller and perhaps less expensive one, or maybe stretch your retirement income by relocating to an area with lower living costs and downsizing? Do you plan to work part-time in retirement, whether to earn a few extra bucks or stay more engaged? Or would you prefer to give back by volunteering your time for a charity or cause that has special meaning for you?
The main idea is to do whatever it takes to remain active and socially connected, as research shows that retirees who have a wide circle of friends and spend time with family members generally find their retirement more satisfying. (For what it’s worth, studies also show that older people who maintain an active sex life also tend to be happier.) The more you keep yourself open to new possibilities and see retirement not as a time for winding down but as an opportunity to seek out new adventures, the more likely any extra years of retirement will be enjoyable and fulfilling ones.
3. Make sure you’ve got a handle on your retirement finances. A longer post-career life definitely has its plusses. But those advantages can easily be blunted if you’ve got to constantly worry about your financial security. Which is why it’s important that you have a sound strategy for creating retirement income that will last as long as you do.
Start by doing a retirement budget so you know how much you’ll have to shell out each month to meet essential expenses as well as discretionary ones that you can more easily pare, if necessary. Once you have a handle on outlays, gauge how much of your spending will be covered by Social Security and pensions, if any, and how much you’ll have to fund via draws from savings.
To determine whether your nest egg can support that level of withdrawals or whether you’ll need to scale back, you can go to T. Rowe Price’s retirement income calculator or the American Institute for Economic Research’s retirement withdrawal calculator, both of which you’ll find along with other helpful resources in the Tools & Calculators section of my Retirement Toolbox.
If Social Security alone isn’t enough to cover your essential expenses, you might consider converting a portion of your savings to guaranteed lifetime income via an immediate annuity or longevity annuity. One way or another, though, it’s crucial that you have a serious plan about turning your savings into sustainable income that can supplement Social Security. Wing it, and those extra years of retirement life may turn out to be more grim than golden.
Walter Updegrave is the editor of RealDealRetirement.com. If you have a question on retirement or investing that you would like Walter to answer online, send it to him at [email protected]. You can tweet Walter at @RealDealRetire.