The Golden Side of Longevity: Financial Challenges and Solutions for Retirement
- Living longer can bring significant financial challenges.
- Strategies such as later retirement and smart investment strategies can help address these challenges.
Eulerpool News·
Living longer undoubtedly comes with benefits, but it also brings financial burdens that are often underestimated. An analysis by the National Council on Aging and the LeadingAge LTSS Center @UMass Boston shows that a striking 49% of future retirees underestimate their life expectancy by five years or more. This could have significant impacts on their finances.
A look at the 2022 data from the Federal Reserve reveals that the average retirement account for Americans aged 65 to 74 holds about $609,000. Stretching this amount over 15 years of retirement is one thing, but doing so over 20 years or more is a different challenge altogether.
A survey by Allianz for 2024 found that 63% of Americans are more afraid of outliving their savings than of death itself. But there is good news: strategies exist to extend retirement capital. One important measure is to delay retirement. For each year beyond the regular retirement age, the monthly pension increases by a permanent 8%. Thus, postponing by three years can increase a monthly pension from $1,920.48 to $2,227.76.
Another step to managing the financial challenges of longevity is smart investment policy. By working with a financial advisor, one can create a retirement portfolio that aligns with their age and risk tolerance. Investments that generate consistent income, such as bonds and dividend stocks, can be advantageous here. Real Estate Investment Trusts (REITs) might also be of interest, as they are legally required to pay out at least 90% of their taxable income as dividends.
Beyond financial planning, personal activity also plays a role. Those who are still physically fit in retirement can save money through DIY projects or preserve their savings through a part-time job. The gig economy offers further options with flexible working opportunities.
Another challenge is elder care. The National Council on Aging estimates that the out-of-pocket costs for long-term care can amount to as much as $140,000. Given that 65-year-olds have nearly a 70% chance of needing some form of long-term care, long-term care insurance may be beneficial. Ideally, this should be purchased in one's 50s to take advantage of lower premiums.
Health accounts can also be used to pay premiums for long-term care insurance, which could facilitate its financing. Modern Financial Markets Data
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