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The fact that Americans are living longer has made the usual approach to financial planning incomplete, according to a a new study of approximately 1,200 people and 10 focus groups conducted by MIT AgeLab and Transamerica. The traditional three-part education, work and retirement plan designed to provide enough for people to live comfortably in retirement fails to take into account the increasing longevity of Americans, it concludes. Instead, the researchers behind the report advocate focusing on three factors: well-being, work and finances as the three main stages of adulthood.
They are Americans living much longer than their grandparents and great-grandparents, with average life expectancy rising from 68 years in 1950 to nearly 79 years by 2009. With that longer life expectancy comes longer retirement. While a man who retired in 1970 lived less than 13 years in retirement, the average length of retirement for men in 2020 was almost 19 years. Someone who is 65 in 2023 has about a 50% chance of living another two decades.
This trend is expected to continue. While there were roughly 92,000 8-year-olds in America in 2020, that number is expected to nearly triple in less than 25 years, for a total of 270,000 Americans over 100 by 2045. In other words, if they stop working at the age of 67, they could spend as many as 33 years in retirement.
To get an idea of how long 33 years can be, consider that in 1990, George HW Bush was president, Madonna was at the top of the music charts, and the #1 TV show was “Cheers.”
“Although Americans are generally optimistic about their future, they may not fully appreciate how much their financial needs, priorities and life circumstances will change over time,” said Dr. Joseph Coughlin, director of the MIT AgeLab. “More than ever, planning for longevity means understanding what matters most at each stage of adulthood, finding balance and supporting priorities with behaviors and actions that lead to a better future.”
Phil Eckman, president of Workplace Solutions at Transamerica, said that “the way we approach our lives and the way we work is changing. People want flexibility and choice in all parts of their lives, both at work and at home.”
Traditional financial planning was built around what, by today’s standards, was relatively short retirement. This meant that leisure took center stage, creating enough room to fund what now looks like a relatively short retirement. But now that the length of retirement has increased considerably, this phase of life is dynamic rather than solely focused on leisure.
“Older adulthood is when clients can begin to celebrate goals they’ve been saving for, such as dream vacations or more time with family, but it’s still a time when many should be prepared to live for several more decades,” the report concludes.
This means that pensioners can use financial advisors as coaches understand the complexity of this stage of life. They could also help them understand the different ways they can “prioritize social, emotional and physical well-being over financial or business goals in the next 10 years of their lives,” according to the report.
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A man in his early 50s is thinking about retirement
Midlife adults face complex and emotional challenges, from striving for career advancement to caring for children and parents. With such a range of challenges, it’s not surprising that this group reported the lowest rates of exercise and reported eating healthy less often than any other age group. One implication is that people in this group should work with their financial advisers to agree on priorities to ensure they are taking care of themselves, both financially and otherwise.
“Financial professionals can serve as planners for clients in midlife, helping them anticipate future needs, challenges and celebrations,” the report states. “For example, financial professionals can support clients who are currently in the caregiving role while helping them anticipate times later in life when they may need care themselves.”
The study also found that this group is motivated to invest in their own well-being, establish themselves in their careers in the short and long term, and start saving for key financial milestones.
Young adults can benefit from using the advice of financial advisors to adopt new habits, routines and attitudes that will prepare them for the near and far future. They should also work with financial advisors to create an adequate emergency fund and build their net worth.
A young woman is talking to her financial advisor.
Retirement it’s not just about money. Longer life expectancy means that retirement will be much more dynamic than the one our parents, grandparents had. It is increasingly about general well-being. It’s something that includes having a proper nest egg, but increasingly it’s about relationships, personal goals, health and work opportunities. The report finds that getting financial advice at every stage of adulthood is key to a well-being retirement.
One way to get help with retirement planning is to work with a financial advisor who can help answer all your questions about retirement options, including Social Security and Medicare. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three trusted financial advisors serving your area, and you can have free introductory conversations with your advisors to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Keep an emergency fund handy in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t exposed to significant fluctuations like the stock market. The trade-off is that the value of current money can be reduced by inflation. But a high interest account allows you to earn compound interest. Compare the savings accounts of these banks.
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