Longer Life Expectancy Doesn’t Mean You Can Delay Planning
Posted by Sheri Samotin on Wed, Oct 05, 2011
People are living longer these days due to medical and other technological breakthroughs. Because of this, many people wrongly assume that they can put off getting their affairs in order for a few more years. However, exactly the opposite is true. Why?
While living in a time with wonderful medical advances means that many of us can expect to live to a ripe old age, the scary reality is that we often didn’t plan for this. The nest egg that we put away for our retirement years ago was probably designed to last for twenty years or so, taking us from the historical retirement age of 65 to our mid-80’s if we were lucky. The reality is that for many such people, their planning will have them come up short since they may well live into their 90s. Making matters worse, many from this generation assumed that the equity in their homes would cover their final years, but with the collapse of the residential real estate market over the past five years that may no longer by true. And we are all aware of the roller coaster that is the financial marketplace. The best time to start planning is when you are young enough to take steps that can have a positive impact on the outcome.
For example, government statistics tell us that at least 75% of people over 65 years of age will require assistance with activities of daily living at some point during their life, and typically this will continue for three to four years. With the most basic level of home health care costing $20 to $25 per hour in our area, even a relatively modest 4 hours of care three days each week will add up to almost $15,000 per year. Multiply that by three years and you are looking at $45,000 just for this expense. Many people in their 50s and 60s would benefit by exploring purchasing long term care insurance while they are young enough and healthy enough to obtain it for a reasonable premium.
Planning ahead might also help you decide when to stop working and when to begin taking your social security benefits. This is a complicated decision and depends a lot on your income while you’ve been working, the lifestyle you envision in retirement and the assets and insurance you have to draw upon in your later years. Doing a little analysis might help you determine that it is prudent to continue working a bit longer than you might otherwise have planned.
Finally, living longer might mean that you are living without your spouse for many years. If you’ve assumed you will have two social security payments and perhaps two pensions, you might be surprised at how dramatically things change immediately when you lose your spouse. I always advise clients to plan a budget that is comfortable on “one retirement income” to protect the second to die from a significant change in lifestyle following the death of the spouse. Of course, one way to plan to mitigate this is through the use of life insurance or the accumulation of assets that can be liquidated to help pay living expenses.
Planning ahead is always a good idea, but even more now when we have to plan for longer and longer periods of time.