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Life expectancies have risen over the last century - meaning people live longer.

And while this is positive news, it also presents challenges for retirement planning.


Because as our lifespans lengthen, so does our time in retirement – which makes it vital to adjust our financial plans.

And this is where a financial advisor plays a key role - by providing guidance and solutions to support retirees in maintaining their lifestyle.

So, let's delve into how longer life expectancy impacts retirement savings - considering both the benefits and challenges.

Decades of Increasing Life Expectancy Even with Recent Setbacks

Except for significant events like the 1918 influenza pandemic, World War II, and the HIV crisis, life expectancy in the U.S. has generally shown a steady upward trend over the past century.

For instance, according to the United Nations World Population Prospects report1 from 2022 life expectancy in the U.S. between 1950 to 2024 has seen a steady increase in the last 74 years – with only one period of declining expectancy (2014-2018).

But the steadily rising projections over the next 75 years are significant – estimating the average lifespan will reach 89 years by 2100.

However, this progress has sharply reversed as COVID and other tragedies – such as soaring drug overdoses - have tragically shortened the lives of millions.

According to the Centers of Disease Control and Prevention (CDC)2 – the COVID era crippled U.S. lifespans - erasing nearly three decades of gains.

A graph showing the growth of the birth rate

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 And while increased drug overdoses are a problem – the COVID pandemic was a relatively rare event that skewed the data to a large decline.

Since then, for the first time in two years, U.S. life expectancy has seen an increase, as per a recent CDC report3.

This turnaround indicates that individuals born in the U.S. in 2022 can anticipate a life expectancy of 77.5 years, up from 76.1 in 2021.

·         However, the life expectancy rate has yet to return to pre-pandemic levels. In 2019, life expectancy stood at 78.8 years.

Therefore, all else equal, it’s likely that the average life expectancy will continue rising in the coming decades.

·         Still, it’s worth noting that Americans' life expectancy gains nearly ground to a halt starting around 2010 as the increases diminished (as both charts above indicate).

Regardless, it’s increased enough so that those born during the end of the baby boom (1946-64) now anticipate living longer.

And that means a bigger nest egg is required for retirement. . .

The Retirement Gap: The Cross Roads Between Living Longer And Having Enough Savings

Hypothetically, if you planned to spend $70,000 a year during retirement – an additional 10 years would cost $700,000. And this isn’t even factoring in inflation.

This is the “retirement gap” – and it’s a serious problem facing the longer-living population.

Thus, to make sure those retirement plans work out, the retiree really only has four options:

1.      Save more during working years – which implies consuming less.

2.      Invest more to nab a greater rate of return without any sudden drawdowns.

3.      Reduce their planned income needs during retirement

4.      Put off retiring for a set number of years.

A retiree would likely need to do some form of all these to subsidize their longer lives.

But it’s important to note that these four have potential downsides – such as:

1.      While saving more will help provide for retirement, it also means less consumption. And if there’s widespread saving across the country, then less consumption could be a drag on economic growth (such as a company generating fewer sales) - which may indirectly affect a retiree's portfolio or work potential due to diminished growth opportunities.

2.      Investing more to get a higher return implies going out further across the risk curve (higher returns often require greater risk). And while this is doable, it may be more volatile. Remember, a sudden and large negative downturn could have crippling effects on a nest egg. For example, imagine those that were planning to retire right before the dot-com bubble burst in 2000 or before the great financial crisis of 2008. That likely would impact their plans. Making matters worse, those already in retirement would then be dealing with the consequences of sequence risk  - which we have written about before in an easy-to-grasp way.

3.      Reducing planned income needs during retirement – such as planning to live off of $40,000 instead of $70,000 each year – is a good way to extend the nest egg. But it also will curb a retiree's spending goals and habits. Also, with inflation, the strain from belt-tightening could be harder than expected. Salvatore M. Capizzi wrote a great piece about this unrealized cost of food inflation and expenses for retirees – which you can read here.

4.      Delaying retirement is a common way to bolster the nest egg. So, for instance, instead of retiring at 65, maybe an individual retires at 70 or later. This will give them more time to make more money, save more, and generate investment returns. But of course, that’s an extra X amount of years that won’t be put towards retirement as previously expected.

Extending retirement to match longer life expectancy presents challenges, including those outlined above.

This underscores the importance of a financial advisor, who can help create a comprehensive plan to address these issues preemptively rather than facing them all at once.

That’s why Dunham created the DunhamDC investment strategy and the Dunham Retirement Income Program – both attractive programs that assist financial advisors plan and care for clients and their nest eggs.

·         You can learn more about both of these and how they can benefit your practice and clients by visiting our dedicated page or contacting our dedicated Business Development Team via email or at (858) 964 – 0500.

In short, preparing for a longer life involves proactive financial planning.

Adjusting retirement age, accounting for inflation, and seeking professional advice can pave the way for a fulfilling retirement.






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