For Mark Roberts’ Use: Rather than deciding upon how much money you need during retirement, one of the key aspects to financial planning revolves around deciding how long you will need it. This can be problematic for some people, because it requires a bit of guesswork. In other words, it’s difficult to put a price tag on your retirement when you don’t know how many years you will actually live beyond your retirement age.
The past century has brought about incredible changes in the human life expectancy. In 1900, the average life expectancy was only around 45 to 50 years old. Between better healthcare, access to proper nutrition, and advancing medical technologies, we are expected to live far beyond those ages. Today, if you are 65 years old, you will probably live another 20 years or so.
While that is great news for our quality of life, it certainly does change the way we think about retirement planning. In the old days many people worked until the day they passed away; now we can look forward to retirement years that include travel, hobbies, and time with friends and family. But without proper retirement planning, many of us may find ourselves sorely disappointed with our retirement lifestyles. In the worst case scenarios, some of us may even outlive our retirement savings.
In addition to a longer lifespan, we now tend to retire earlier than in past years. In 1950, the average retirement age was 68. Today, that statistic has dropped to age 62. We may conceivably spend a quarter of our lives in retirement, so retirement planning is not something to be taken lightly.
In order to be sure you won’t outlive your money, seek advice from a professional financial advisor. Remember that rather than aiming for a specific amount of money in savings, you should be thinking about the amount of money you need each year of your retirement. Your financial advisor can help you put together a solid plan that will provide the income you need for as long as you need it.
McKinsey Global Institute. 2008.