Domino Effect of Longevity Creates Many Needs

It won’t take the 2020 census to affirm what is already known from many sources: People in the United States are living longer lives. Generally accepted findings from government and insurance industry sources indicate that:

• Average lifespans are 86 and 88 years from men and women, respectively.
• One spouse of a married couple has a 50% chance of living to 93, and a 25% chance of living to 97.
• More than 72,000 Americans are 100 or older, and the number could reach one million by 2050.

All that living costs money, creating a demand on retirees’ portfolios that was likely unforeseen by those who designed a retirement plan in their late 50s or 60s, believing that 20 – 25 additional years might be their limit.

The multiplier effect of longevity can devastate a poorly planned portfolio. Pressure comes from the risk of volatile markets, asset depletion and inflation, to name a few.
While it’s traditional to believe that market risk is to be reduced as age advances to one’s 70s or 80s, retirement planners encourage action be taken in the five years before and after retirement’s onset, ages 57 – 67 for many.

A well-designed retirement plan is a defense against the impacts of longevity-driven spending. It starts by matching domestic and discretionary expenses to initial lifetime income sources including Social Security and applicable pensions. Income gaps can be partially covered by other resources, but many traditional asset types like bonds and mutual funds may produce small returns, and are not serving retirees as in prior generations.

Properly structured fixed index annuities can take longevity and income risks off the table. Offered by insurance companies through contractual policies, many annuities provide guaranteed lifetime income, and offer cost-of-living and income options to push back against inflation. Tied most often to the S&P 500 index, annuities offer protection against losses, though they don’t pay dividends. With longevity as life’s biggest uncertainty, it makes sense to have multiple sources of guaranteed lifetime income within a well-rounded retirement portfolio.