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How Longevity Affects Your Retirement Plan

Thanks to advances in medicine and public health, people around the world are living longer than ever. According to the Population Division of the United Nations Department of Economic and Social Affairs, the number of centenarians — people aged 100 or older — almost doubled between 2000 and 2020, with more than 90,000 of them being right in the United States.

While longevity is a net positive, it does present some challenges with regard to retirement planning. After all, the amount of money a person estimates they will need in their later years depends largely on how long they expect to live, and finite financial resources get stretched thin with every additional circuit around the sun. Given this reality, investors may need to rethink their approach to retirement finances as they advance into their 80s and 90s.

Spending During Retirement

Image via Flickr by American Advisors Group

The 2021 Consumer Expenditure Survey by the United States Bureau of Labor Statistics revealed that Americans aged 65 and older — those most likely to be retired — spend an average of $52,141 per year. Though that is considerably lower than the $66,928 yearly average for all age demographics, it indicates that retirees can expect to face some challenges related to longevity in retirement.

Imagine, for example, a person who retires at 67 and lives to the current mean life expectancy of 79. If they spend exactly the average amount for all 12 years of their retirement, they would need a total of $625,692 to cover all of their expenses. However, if they were to join the growing number of American centenarians, their retirement period would last 33 years and they would need more than $1.7 million to maintain a consistent standard of living throughout.

Keep in mind, as time goes on, both the cost of retirement and the average life span are likely to increase, and the crux of retirees’ expenses comes from volatile commodities, like housing and food, or services that become costlier with age, such as health care. With that in mind, total retirement expenses may rise faster than retirees and pre-retirees can keep pace. Probably, they will need larger volumes of income to ensure they don’t run out of money after they leave the workforce.

The Impact of Longevity on Your Retirement Funds

Longevity tightens your retirement funds by forcing finite financial resources to accommodate a longer time span. After you retire, the income you receive comes from accounts that you set up and funded when you were younger, such as individual retirement accounts (IRAs), 401(k)s, and pensions. With these, having an earlier start facilitates a more profound snowball effect, allowing you to accrue more savings over a longer period. But people who could not get an early start may find their retirement distributions to be insufficient for covering their expenses or too temporary to provide reliable long-term financial support.

Strategies for Mitigating the Impacts of Longevity

Increased longevity and the rising cost of retirement mean that investors would be wise to rethink their retirement plan and use all of the resources at their disposal. Here are some specific strategies that can help you mitigate the impacts of longevity on your retirement:

Spend Less Now

A proactive approach that anyone can take is to minimize their current spending. It not only acclimates pre-retirees to living on less, a habit likely to benefit them in their retirement years, but also leaves more money for savings or investments that can grow into a larger supply of reliable retirement distributions.


Work under the assumption that you will live a tremendously long life so that you overestimate how much money you will need in retirement. Such a shift in mentality can motivate you to put away larger contributions now that grow over time and provide you with a steady income in the future. In doing so, you also create a buffer between your estimated needs and your real needs. For example, if you calculate that you’ll need $6,000 per month in retirement but really spend only $5,000, you end up with a $1,000 surplus every month.

Make Catch-Up Contributions

People aged 50 or older can make additional payments called catch-up contributions into their tax-advantaged retirement accounts. A traditional IRA, for example, normally has an annual contribution limit of $6,000, but this increases to $7,000 when you enter your 50s. The idea is to give pre-retirees the opportunity to maximize their portfolio so they have a larger pool of money from which to withdraw later.

Delay Retirement

Delaying your retirement serves two functions that stretch the value of your retirement funds. One, it reduces the time span in which you aren’t earning a regular paycheck. And two, it allows your retirement account more time to grow to a greater value. Both functions allow for an easier time funding your standard of living.

Diversify Your Portfolio

A mainstay of a successful retirement strategy is diversification, the practice of including a broad variety of investment products and picks in your portfolio. In addition to your retirement accounts, you might incorporate stocks and bonds to grow your wealth faster and more exponentially. You could also consider certificates of deposit and insurance products to supplement your retirement income.

The Importance of Having Other Income Sources

Having multiple sources of income in retirement can help to prevent the prospect of running out of money. Should you deplete your 401(k), for example, having an ongoing mix of dividend stocks makes sure that you continue to receive cash, while selling off some well-performing stocks provides profits for buoying your savings. Another vehicle to consider is an annuity, an insurance product that grows tax-deferred and can guarantee a lifetime of disbursements starting at a specified date.

With diverse income streams working to your advantage, you can more easily avert choking off your finances when you need money the most. To bolster the integrity of your portfolio, consider speaking with a financial adviser about additional strategies for staving off retirement challenges associated with longevity.

Jeff Campbell