What the Looming Longevity Crisis Could Mean for Your Bank Account

162

Better medicine and healthier lifestyles mean life expectancy is on the rise for many. That’s great news, but there’s also a downside—especially when it comes to helping financially support parents who may end up living into their 90s and beyond.   

senior-woman-jogging-photo

People are living longer

Back when Social Security was created in 1935, the average life expectancy in the U.S. was just 61 years. Since then, life expectancy has risen to over 79 years, and that’s just the average from birth. Many people will live longer than the average, and some much longer. If your parent is 65 today, there’s an over 30% chance he or she will live past 90, and a one in seven chance of living past 95.

In addition to the trend of people living longer, there’s also the potential for world-changing medical and technological breakthroughs that could drastically extend life expectancy. A cure for common cancers or a leap forward in heart disease research could mean millions more baby boomers living to 100 and beyond. Autonomous vehicles promise to significantly reduce car accidents, which is another leading cause of death. That’s all great news of course, but it also brings new problems, like…

How long will the money last?

In the past, Social Security and pensions were the primary way people protected themselves against “longevity risk,” or the chance of outliving their resources. Now that we’re living in a mostly 401(k) (or nothing at all) world, solving the problem of longevity risk is becoming primarily up to individuals and their families. This is a huge problem, as there are some 76 million baby boomers in the U.S. between the ages of 55 and 73.

One common strategy for baby boomers at or nearing retirement to sustainably draw down their savings is known as the “4% rule.” In a nutshell, the idea is this: in your parents’ first year of retirement, they’d withdraw 4% of their retirement savings to cover their cost of living. Every year after that, they’d withdraw the same amount, plus a slight increase to keep pace with inflation. This basic strategy is intended to make retirement resources last for about 30 years, which might be sufficient  if…

a) your baby boomer parents have retirement savings to begin with, and

b) your parents don’t live too long

Unfortunately, there are serious problems with both A and B. A 2018 study from the Insured Retirement Institute found that 42% of baby boomers have no retirement savings whatsoever, and just 25% expect their savings to last throughout retirement. There’s rarely an easy answer when it comes to a mismatch between parents’ longevity and their resources, but one common approach is tapping the younger generations (i.e. you) to help support their needs.

A new approach to longevity risk

The first step in guarding against your parents’ longevity risk is acknowledging the potential problem and having a candid discussion with them about their finances and retirement plans. Who knows? They might be sitting on a secret trust fund or priceless antique they can use to finance their later years.

The next step is exploring how your own finances and retirement plan could be impacted by having parents who are lucky enough to live into their mid-90s and beyond. And remember: if your parents are in their 60s and early 70s today, they may need your financial support just as you’re entering your own retirement years.

This all might seems like too large a problem to solve alone, but there’s relief on the horizon. There are a small number of products in development, like AgeUp, designed to help families prepare for the looming longevity crisis America is facing.

Like this post? Let us know!
  • CoolAF (86%)
  • Cool (14%)
  • Whatever (0%)
  • Boring (0%)
  • WTF (0%)
Summary
Title
What the Looming Longevity Crisis Could Mean for Your Bank Account
Description
Better medicine and healthier lifestyles mean life expectancy is on the rise for many. That’s great news, but there’s also a downside—especially when it comes to helping financially support parents who may end up living into their 90s and beyond.   

More News from Nexter