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The fact that Americans are living longer has made the usual approach to financial planning incomplete, according to a new study of about 1,200 people and 10 focus groups by MIT AgeLab and Transamerica. The traditional three-part plan (education, work and retirement), which aims to ensure that people have enough to live comfortably in retirement, does not take into account the increasing longevity of Americans, he concludes. Instead, the researchers behind the report advocate focusing on three factors: well-being, work and finances as the three main phases of adulthood.
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Americans live much longer than their grandparents and great-grandparents, and the average life expectancy increased from 68 years in 1950 to nearly 79 years in 2009. This longer life expectancy comes with longer retirements. While a man retiring 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 years old in 2023 has about a 50% chance of living two more decades.
This trend is expected to continue. While there were approximately 92,000 octogenarians in the United States in 2020, that number is expected to nearly triple in less than 25 years, for an estimated total of 270,000 Americans over the age of 100 by 2045. In other words, if they stop working 67 years old, they could spend up to 33 years retired.
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 number one television show was “Cheers.”
“While 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 is most important at each stage of adulthood, finding balance, and supporting priorities with behaviors and actions that lead to a better future.”
Phil Eckman, president of Transamerica Workplace Solutions, said, “The way we approach our lives and the way we work is changing. “People want flexibility and choice in all aspects of their lives, both at work and at home.”
Traditional financial planning was based on what, by today’s standards, was a comparatively short retirement. That meant leisure was the focus, building enough savings to fund what now seems like a comparatively short retirement. But now that the length of retirement has increased substantially, this phase of life is dynamic and not solely focused on leisure.
“Adulthood is when clients can begin to celebrate the goals they were saving for, like their dream vacation or having more time to spend with family, but it’s still a time when many should be prepared to live several more decades,” the report concluded. .
That means retirees can use financial advisors as coaches to understand the complexity of this phase of life. They can also help them understand the various ways they can “prioritize social, emotional, and physical well-being relative to financial or career goals over the next 10 years of their lives,” according to the report.
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Man in his 50s thinking about retiring
Midlife adults face complex and emotional challenges, from striving to advance in their careers to caring for children and parents. With such a variety of challenges, it is not surprising that this cohort reported the lowest rates of exercise and said they ate healthily less frequently than any other age group. One implication is that people in this group should work with their financial advisors to set priorities that ensure they are taking care of themselves, both financially and otherwise.
“Financial professionals can serve as agenda setters for middle-aged clients, helping them anticipate future needs, challenges and celebrations,” the report states. “For example, financial professionals can support clients who are currently in a caregiving role while also helping them anticipate a time in later life when they themselves may need care.”
The study also found that this cohort tends to be motivated to invest in their well-being, establish themselves in their short- and long-term careers, and start saving for key financial milestones.
Younger adults can benefit from using the advice of financial advisors to adopt new habits, routines, and attitudes that will prepare them for both the near and distant future. They should also work with financial advisors to build an adequate emergency fund and increase their net worth.
Young woman talking to her financial advisor.
Retirement is not just about money. A longer life expectancy means that retirement will be much more dynamic than the leisure focus that our parents and grandparents had. Increasingly, it’s more about general well-being. That’s something that includes having adequate savings, but it’s increasingly about relationships, personal goals, health and vocational opportunities. The report confirms that receiving financial advice at each phase of adulthood is key to having a retirement characterized by well-being.
One way to get help planning for your retirement 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 vetted financial advisors serving your area, and you can conduct free introductory calls with your matched advisors to decide which one you think 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 on hand in case you have unexpected expenses. An emergency fund should be liquid, in an account that is not at risk of significant fluctuations like the stock market. The downside is that inflation can erode the value of liquid cash. But a high-interest account allows you to earn compound interest. Compare savings accounts at these banks.
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