One of the most important numbers that we need to consider as we build our retirement plans is our life expectancy. After all, our expectations regarding how long we are going to live influence everything from how aggressive we can be with our investments to when we should start taking Social Security.
The problem is that the way that we look at life expectancy, in my non-professional opinion, is somewhat backward looking and may not fully account for potential developments in biotechnology, medicine, nanotechnology and artificial intelligence. Ok, that’s a mouthful. Basically, what I’m trying to say here is that at the rate at which technology is improving, we may live much longer than we are planning for.
In this article, I’d like to talk about some of the implications for our financial lives if, as I suspect, we are at the beginning of a longevity revolution. But, first, a couple of caveats.
I’m Not a Doctor and I Don’t Play One on TV
Because life expectancy is such an important concept when it comes to planning for our financial future, I want to be clear that I am not providing specific financial advice.
I am not a statistician, doctor or financial professional. As a result, it’s best to think of the information in this article as a “what if”… something to explore with the medical and financial professionals you normally rely on.
Ok, all that said, let’s dig into this topic more deeply!
Why Living to 120 May Become “Normal”
According to Our World in Data, “In practical terms, estimating life expectancy entails predicting the probability of surviving successive years of life, based on observed age-specific mortality rates.”
The key words here, in my opinion, are “based on observed age-specific mortality rates.” Statisticians (and scientists, more generally) like to work with observed data. They can’t just speculate about how long people will live if researchers cure cancer or biotechnology is able to modify our genes to reverse the aging process.
But, according to many experts, from a longevity perspective, we may be just years away from transitioning from linear progress to exponential progress.
For example, in an interview, technologist, Ray Kurzweil talked about the fact that our bodies are now being looked at as information systems that can be analyzed and reprogrammed for optimal health. As he said, “We will reach a point, 10 to 20 years from now… where we are adding more than a year (to our life expectancy) every year, not just to infant life expectancy, but, to your life expectancy.”
Think about that for a second. If you can hang in there for 10 to 20 years, which most of us can, your life expectancy could start to change *in real time*!
I’m using 120 as an example of the kind of life expectancy that even our generation might be able to expect, but, the truth is none of us really know how long humans can survive.
So, now, let’s assume that we are dramatically underestimating our life expectancy and talk about how this might impact our financial future.
Will Social Security Be There for You at Age 120?
In a word, no. Even with current, arguably ultra-conservative, estimates of life expectancy, Social Security is a dead man walking. It is only a matter of time before the government is forced to cut benefits, raise the retirement age or, more likely, both.
One thing that I can guarantee is that none of the existing models for how long Social Security will last consider the fact that many of us will likely live to age 120 or older. Even if you think you can count on Social Security to be there for you until age 85 or 90, you should be highly skeptical about its ability to support you if people start living to 120.
This is not intended to scare anyone. It’s a simple fact that Social Security wasn’t designed to support people for 55 years in retirement.
So, as you think about your retirement, it is even more important that you have multiple sources of income and significant savings to weather the coming storm.
Do You Need to Rush to Retire at Age 66?
One of the reasons that many of us rush to retire as soon as possible is that we feel like we have a limited number of years ahead of us. More importantly, we feel like the number of years of good health and independence that we still have left are limited. We want to experience as much as we can, while we still can.
But, consider this. It’s not just our life expectancy that will improve in the coming decades. The same technological forces that I mentioned earlier in this article will be working to keep us fitter and healthier longer. If I had to make a prediction, I would say that, by 2030, it will be possible for 85-year-olds to have the bodies of 55-year-olds… if they can afford it.
So, the question is this… if you agree with the assumption that people are going to start living until 120 in relatively good health, does it still make sense to retire at age 66? More importantly, could you afford to retire at age 66 if you had to stretch your savings until 120? That’s 54 years of income free life to plan for!
Are Your Risk Assumptions In Line with Your Longevity Assumptions
One of the reasons that older adults tend to move their money into “safer” investments over time is that they feel like they have fewer years ahead of them to ride out any bumps in the stock market. In a world where you are planning on living 10-15 years, this makes a lot of sense.
But, would you look at your investment strategy slightly differently if you thought that there was a high probability that you would live for significantly longer? Would it make sense for you to look at your investments in multiple buckets – one short term, one medium-term and one long-term, with a different risk profile in each?
Once again, I am not giving specific advice here. I am simply suggesting that you discuss your longevity assumptions with your financial planner. After all, their advice can only be as good as the data that it is based on. If you think that you will live for longer than 20 years, they need to know that.
Are You Ready for Your Second Life?
Through my work with thousands of retirees, I have come to understand that the transition to retirement is a complex and often emotional experience. Many men and women that I know who have reached retirement age, describe going through a process of reinvention.
Imagine a world in which 65 was the new “middle age.” Would it make sense to see “retirement” as a time of taking it easy and relaxing? Or, would it make more sense to see this as a completely new phase of life, one in which we could start over and really focus on our passions, businesses and causes?
The problem is that you won’t know whether you really are going to have the opportunity to live until 120 until you are in your 80s. So, you will need to make this decision early.
If like me, you believe that 120 is going to be the new 80, you will want to act aggressively now to build a financial, social and psychological foundation for your life. Instead of looking at life after retirement as a time for slowing down, see it as a time for speeding up. This is the only way to position yourself to take advantage of everything that the future has to offer.
Do you think that you will live to 120? Why or why not? How would living to 120 impact your financial future? Do you think that you are ready, socially, financially and psychologically to live to 120? Let’s have a conversation!