You’ve probably heard it before. People are living longer! The average life expectancy has been increasing one year every five years, according to World Economic Forum. Kids born in 2017 can realistically expect to live to 100. But what does the probability of increased longevity mean for your wealth and health?
Look into the numbers
It’s easy to get excited about all the possibilities of living a longer, fuller life. However, more time on earth means possibly working longer and increasing your necessary savings. Here are some recent statistics to keep in mind:
- The average cost of retirement is $738,400, of which $260,000 will go to healthcare costs.
- The average retiree (65 and older) has about $3,700 in monthly expenses, or $44,600 per year.
- Medical expenses can more than double between the ages of 70 and 90.
- An average American in his or her 90s spends more than $25,000 a year on medical care.
- On average, in the last year of life, people spend $59,000 on medical spending.
Obviously, it’s important to prepare for retirement before the time comes. Also, remember that these numbers are just averages. Where you live, your hobbies, your health, and your desired retirement lifestyle are also factors that need to be considered.
For example, if you’re a minimalist in good health and want to downsize when you retire, your average cost of retirement could be lower than the national average. On the other hand, if you plan on traveling abroad, choose to continue unhealthy habits such as smoking, and are accustomed to a higher standard of living than your peers, the number could be higher.
Then again, it’s also important to plan for life’s unknowns. Some people unexpectedly live beyond 100 or become diagnosed with an undesirable health issue.
So how do you prepare for living longer and the financial variables associated with it?
Seek guidance and financial knowledge
The most important thing you can do is talk to a financial professional. He or she will be able to evaluate your current investment strategy and offer comprehensive guidance to retirement planning.
Here are some other general tips and guidelines to broaden your financial knowledge around retirement preparation:
- To build a foundation of income in retirement, financial professionals recommend saving 10% to 15% of your annual salary.
- Be mindful of your own life expectancy, not just the average. Analyze your own personal factors, such as age, gender, and medical history. The Actuaries Longevity Illustrator is an online calculator and excellent resource for soon-to-be retirees.
- Create a monthly budget for each year you plan to be retired. Budget all of your estimated expenses – medical, dental, housing, food, etc., against your estimated income from Social Security, pensions, savings, etc. Wondering how Social Security has changed in 2017? Transamerica has you covered. Also, consider how your expenses change when you retire. For example, perhaps you’ll save money by ditching your car and taking public transportation. Evaluate how healthy you’ll be at the different stages of your life. You might want to plan to save a little more for family trips soon after retirement since you’ll have more energy while shifting those dollars towards medical expenses in your later retirement years.
- Consider delaying taking Social Security benefits and working longer. By doing so, you can increase your monthly Social Security allowance by up to 32%. Plus, in a society where retirement can lead to less social engagement, you might find that continued work will keep your social life in tune, keep you sharp, and provide a sense of purpose and happiness.
With an increase in life expectancy, preparing earlier for retirement is worth considering. Take the time to map out how you’ll want to live in future years, set up a meeting with your financial professional to see how you can get the most out of your investments, and stay tuned to Transamerica’s Knowledge Place to keep up with financial trends in retirement.
Neither Transamerica nor its agents or representatives may provide tax, investment or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors and financial professional regarding their particular situation and the concepts presented herein.
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