Will You Be Financially Secure When You Are 100?

Are you prepared to live a long time? You should be because many Americans are now living well into their 90s and 100s. If you are over 60, you can probably remember a time when a radio personality by the name of Paul Harvey used to wish a happy birthday to a few Americans who had turned 100 that week.  He read off the names in less than a minute on his daily broadcast.  It was a big deal in those mid-20^thcentury years to reach that centennial mark; only 2300 people in the entire country were over 100 years of age in 1950. 

Big changes have occurred in the last 60 years and today the estimate is that the U.S. has over 90,000 centenarians. Reaching that milestone is still a significant achievement and is generally the capstone of a strong, healthy life, good genes, and a lot of luck. However, it also implies that there are other milestones leading up to it that are significant as well, and swelling in numbers.  As of this year, there are nearly 6.7 million people in the U.S. who are over age 85. It represents an increase of over 5000% since 1900. The expectation is that this group will grow to over 14 million by 2040. Statistically speaking, if you have reached the age of 65, you have at least a 50% chance of reaching the age of 85.

These statistics are fascinating and they bring up many questions about the future for all Americans, not the least of which is how will all those older Americans afford to live into their 80s, 90s, and 100s? In its current state, the U.S. Social Security Program will not be sustainable beyond the year 2037. In order for it to be sustainable beyond that year, congress will need to enact a 13% reduction to the scheduled benefits, or a 2% increase in the payroll tax rate, or some combination to make it sustainable for the next 75 years. Even with the potential extension of social security benefits, few people can survive on those payments alone. When you combine that with the fact that most companies no longer offer defined benefit retirement plans for their employees, it means that older people in this country will need to rely more and more on private savings and investments in later life.  

Financial Planning 

Financial planning is critical if we are to live securely as we add years to our lives. It’s important to have a solid understanding of your current finances and make some projections into the future. It’s also important to set some financial goals and develop a plan for the long run. This kind of analysis will help you understand what you can safely spend today and how much you need to save in order to secure your future.  You can do it yourself with the online tools available today, but you might be better served by engaging a fee-only certified financial planner or a financial advisor associated with your bank. 

Insurance

One of the reasons so many of us are living longer is because medical science has now found ways to help us manage the conditions that would once have killed us–either immediately or within months. Coronary artery disease is now mitigated with statins to lower cholesterol levels; diabetes can be controlled through diet and drug therapy; many cancers are now survivable and lives extended for many years through treatments like chemotherapy and radiation, as well as advanced surgical techniques. 

It goes without saying that we all need health insurance. Most older adults are covered by Medicare, but it’s also important to have a supplemental plan because in the event of a long-lasting medical crisis, the 20% that Medicare doesn’t cover can bankrupt you if you don’t have that “medigap” plan or a Medicare Advantage plan. 

You may also be a candidate for long-term care insurance (LTCI). Since a person who turns 65 today has close to a 70% chance of needing long term care at some point in their life. Women typically need this care longer than men (3.7 years as opposed to 2.2 years). If you don’t have a family member who can provide this kind of non-medical care for you on an ongoing basis, you may need to hire outside help for it or go to live in a rehabilitation center for some period of time. This can be very costly and use up your savings quickly if you don’t have insurance to cover it.  Unfortunately, LTCI is expensive. The later you wait to enroll, the more costly it will be, but if you can swing the premiums, it could save your nest egg from quick depletion. 

Annuities

An annuity is an insurance product that is designed to provide a fixed income stream for your lifetime or for a specified period of time. It can be purchased with a lump sum or a series of payments. It can begin paying out immediately or at some point in the future.  These are all choices you make when you purchase a plan. Annuities are complicated instruments and if the idea of a guaranteed income stream in retirement appeals to you, you might want to learn more about them. Annuity.org is a good educational site to gain a better understanding. Most insurance large companies offer annuities and your financial advisor is a good source of information on them.

One interesting program I stumbled across recently offers a new twist on annuities. AgeUpdefines itself as a “longevity annuity.” It’s also referred to as a deferred income annuity. It’s somewhat like a pension you buy for yourself. What makes AgeUp different is that it is designed specifically for people who expect to live beyond age 90. It’s a relatively inexpensive program, with no up-front lump sum and monthly premiums hovering around $50. Payouts begin at a significantly older age than some of the other longevity annuities. If you are in your 70s and in good health but anticipate you will have a difficult time extending your savings beyond the next 20 years, this product may be worth exploring. 

From the vantage point of our 50s and 60s, these concerns can seem a long way off, but they are important issues for boomers and Gen Xers that didn’t have relevance to previous generations. It’s never too early to start exploring your options for a long life, which statistics say many of us will have.