Looking to implement a financial plan? For most people, this includes making decisions with the long term in mind. However, the definition of “long term” tends to vary. It can depend on factors like age and individual and family goals. However, it’s safe to say that most planners and their clients would agree that long term is usually measured in years, not months. Whether it’s the young professional first considering a still-distant retirement age or a retiree trying to leave a financial legacy, the idea is the same: plan today for an uncertain future. What often gets lost in this perspective is planning for the long long term. And knowing just how long the long term can be.
Life Expectancy in the 21st Century
It’s a reasonable claim that in recent decades, each generation in the US was able to live longer than the preceding one. Want to know what’s even more amazing (and challenging)? From a financial planning perspective, over half of Americans tend to underrate their own life expectancy. In addition, life expectancies are rising at a remarkable rate.
According to recent research, an average male of age 65 in the US has a 40% chance of living to age 85. The average female at age 65 with the chance of living to age 85 is a remarkable 53%. It’s even higher for married couples. A married couple of age 65 has a 72% chance that at least one of them will live to be 85.
When we are preparing a financial plan for a couple or individual, our default life expectancy age is 93 for women and 90 for men.
How Does This Longevity Information Impact Financial Planning?
How does this impact financial planning? Put simply, this means that a couple in their 40s or early 50s who are making a financial plan need to define their long term as being at least 40 years. What if this same couple also wants to leave an estate for their children and current or future grandchildren? If so, their financial plan may need to take into account a time horizon of 50 years or more! This is planning for the long long term.
Thankfully, the purpose off a financial plan is not making specific predictions about what the future will look like in 40+ years. Instead, for most of us, here’s the real question a financial planner tries to answer: “Based on the financial decisions we make today, is it reasonable to expect we will meet our goals for the future?”
What Steps Can I Take Today?
The steps you take now depend on your circumstances and goals. It may make sense to treat the possibility of living to an age beyond what you had planned for as a risk that needs to be insured against. This “longevity risk” can be managed with a variety of strategies. Here are a few:
- Selecting the right age to start taking Social Security
- Taking advantage of insurance and annuity products
- Carefully managing debt
This isn’t an exhaustive list by any mans. However, all of these decisions are legitimate ways to approach the risk of longevity.
But what about specifics? Like exactly how much longevity insurance is needed? What is the right age to tap Social Security?
Prepare for the Future With An Experienced Financial Planner
A good planner can help answer these and other long-term related questions. There’s no one-size-fits-all answer. This is all the more true when planning for decades. A lot can happen between the day you first make a plan and all the life events (planned and unplanned) that take place each day after. For this reason, it makes sense to work with a professional who can help you take the right steps toward your long, long-term goals.
Ready to start planning for the long long term? Stewardship Trust Advisors can help. Schedule a consultation today.
These weekly articles which are produced and distributed by Pilgrims Capital Advisors, Inc. contain information on topics about investing, tax planning, estate planning, asset allocation, insurance, and many other financial subjects. Please note that they are very general and must be applied to your circumstances through the services of a trained or licensed professional who specializes in these areas. If you have questions or needs related to the subject matter of this article please contact us by clicking on the link below and we will point you in the right direction.