What Does This Article Cover?
Imagine blowing out a hundred candles on that birthday cake. You just might.
You could be one of a growing number of centenarians in this country. Today, there are more than 60,000 men and women who have passed the century mark, reports the U.S. Census Bureau. By 2010, that number will break 129,000, and by 2050, America is projected to be home to more than 800,000 men and women who are 100 or older.
Not even sure you want to make it to 100? How about 85? There could be as many as 20 million by 2050.
Will you be one of them? You may be. In our society, we're pushing back the whole idea of old age. Most of us expect to live into our 70s...maybe our 80s. Now, it's not uncommon for Americans to see their 90th or even 100th birthdays...and to be in pretty good health for most of that time.
Historically, the age-65 retirement date was pegged to coincide with life expectancy, which was 65 years. So, retirement meant a few years, maybe a decade or so. Today, however, we’re retiring earlier and living longer. That’s good news, but it also poses a dilemma.
What is Life Expectancy?
To be prepared for your retirement, it is important to understand how long your retirement might last. Many new retirees make the mistake of simply anticipating their retirement income needs through their "life expectancy." Many people mistakenly think "life expectancy" means the latest year that they can expect to remain alive. In reality, however, life expectancy refers to the age at which someone is 50% likely to die, or equally 50% likely to remain alive. Planning through life expectancy is therefore often inadequate.
|Life Expectancy for a 65-year old in good health|
Will you be financially prepared for one incredibly long retirement? Imagine retiring at age 65 and living another 35 years. That’s a long time with no earned income. Even if you believe you are ready today, times change.
Try to look forward, and imagine that you retire today and live to the year 2040.
Better yet, look back 35 years — to 1970 — when an American family’s median household income was a comfortable $8,734, or less than $168 a week. Still that was enough to afford a new home, which sold for $26,600, and to pay for gas, which cost $.36 a gallon. Most of all, people were retiring comfortably on pensions of several hundred dollars a month.
The point: The world has changed dramatically over the last 35 years. During the next 35 years, it is likely to keep changing, and at an even faster pace.
You cannot predict the future. Even so, you can still prepare for it. Financially speaking, that means accumulating money that will work for you when you are ready to stop working, replacing your current income with retirement income.
One thing is certain. If you are still working, build up your financial security nest egg. The goal is to empower yourself to live without financial worry in your senior years – no matter how long you live.
Still, this is an issue that most people have not addressed, primarily because many Americans believe they are on track for a comfortable retirement, even though they are nowhere close to saving enough to do so. According to the 2005 Retirement Confidence Survey, 65 percent of workers are confident about their retirement prospects. This includes 37 percent of workers who "have not saved a dime for retirement." They could be in for a terrible surprise in the future.
Some are counting on Social Security, but that is not designed to keep recipients in the lap of luxury. The average benefit for a retired worker (as of June 2005) was $958.60 a month, or just over $11,500 a year.
Also let’s say you have "enough," but enough for how long? There is a real danger of outliving your assets. For the sake of discussion, let's say that you have accumulated $300,000 by retirement. How long will it last? That depends on how much your nest egg earns and how much you withdraw each year. Example: If the principal earns 7% on average, and you withdraw 8% of your initial principal, or $24,000, each year, your money might last 30 years (with inflation, it could go even more quickly). That might be adequate, but there are no guarantees, especially if you consider that life expectancies should continue to increase in the coming decades.
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