Retired Certified Financial Planner Michael Stein has a rich sense of humor. Describing a world with a normal life expectancy of 140 years to an auditorium full of planners attending the annual CFP convention in Dallas, he waxes nearly poetic:
“Yes, I can imagine a future life in which I am an active tennis player at 120, taking care of my ailing 140-year-old parents… and coming home to my 100-year-old children, who never left.”
In fact, while that notion provokes hysterical, rueful laughter, Mr. Stein believes that few people have grasped the kind of future most of us are facing. Retirement is no longer “a brief miserable period of being too sick to work, and too well to die.” he says. Instead, future retirements are likely to be so long that we will divide them into four distinct periods.
Skeptical?
Then consider the following information on the rate of improvement in life expectancy at different ages and how it has changed since 1900. While the rate of improvement was a slender 0.1 percent a year, at all ages, at the turn of the century, now the greatest advances are being made for our oldest citizens, with the highest rate of improvement going to those 85 years old.
The Acceleration of Longevity
| Age | 1900-1930 | 1930-1960 | 1960-1996 |
| 65 | 0.1% /year | 0.6%/year | 0.6%/year |
| 70 | 0.1 | 0.6 | 0.7 |
| 75 | 0.1 | 0.6 | 0.8 |
| 80 | 0.1 | 0.6 | 0.9 |
| 85 | 0.1 | 0.3 | 1.0 |
Source: Michael Stein, “The Other Side of Retirement Planning”
“My guess is that we’ll eventually see longevity increases at 1.5 percent a year. That means a person with a 20-year life expectancy at retirement can actually expect to live another 26 to 30 years. Basically, you’re going to need to figure that you’ll live about 50 percent longer than the expectancy table says.”
Ironically, even as life expectancy has been increasing, Mr. Stein says that we are setting our “target age” for retirement earlier and earlier, with most choosing age 55. As a result, retirement can now be described as four distinct periods:
- Early retirement/ still earning years. “Retirement earnings”, Mr. Stein says, “are the fourth leg on the retirement stool. They are what you have in addition to Social Security, a pension, and personal savings. By relieving the pressure on savings in the early years of retirement, work has very positive effects on financial assets.” In other words, the longer you put off making withdrawals from your nest egg, the more your financial assets are likely to grow. Your early retirement job might have much less pressure, be a long wished for change, or the expansion of a lifetime hobby.
- The “go-go” years. Active retirees buy their RV, take cruises, and do all the things they’ve haven’t had the time to do before. As an example, Mr. Stein told the story of an 83-year-old woman. Asked by a reporter what had moved her to take up skydiving she replied, “Well, I’ve just been too busy and didn’t get around to it until now.”
- The “slow-go” Years. We become less active and more passive. We travel less and initiate less. We’re not exactly in our Permanent Rockers, but life has definitely slowed down.
- The “no-go” Years. Illness or other limitations dominate daily life and much energy is devoted to dealing with the side effects of aging.
How long will each of these periods be? It all depends on the person. Regardless of the pattern, however, Mr. Stein believes that longer life expectancies will change how we transfer assets to children. Arguing that receiving an inheritance at age 70 or 75 (or 120) would be less meaningful than receiving it earlier, he foresees that more and more people will adopt a pattern of lifetime gifting, providing regular (or irregular) gifts to children and grandchildren.
And maybe great-grandchildren.
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Pixabay
(c) Scott Burns, 2022