Longevity logic and retirement rationales

The professional association to which I belong meets the second Tuesday of the month. Afterward, many of the members in attendance hit a nearby Italian bistro for a buy-your-own dinner.

Last week, I exited for home alongside another long-time association member, George, who had a train to catch. I asked if he’d commuted downtown just for the meeting, and he said he hadn’t. “I had a meeting with a company down here earlier, and it looks like I’m picking up a new client, ” he crowed.

Though hale and hearty, George is the very picture of a guy bearing down on that traditional retirement age of 65. I told him I admired him for being on the new business trail. And if you don’t mind my asking, I added, “How old are you?”

“I’m 76, ” he responded.

Whoa! Now I was really impressed. I remarked that when I’m a bit more than three years away from octogenarian status, I want to be as vigorous as he.

“I don’t have much choice, ” he said. “I’m from a line of long-lived folks.”

“Ah, people who lived into their 80s, ” I guessed out loud.

“No, people who lived into their 90s, ” he corrected. “So I have years to go, and besides, I don’t have a ton of savings. If that’s where you’re at, you work.”

We hear about older folks dallying in the employment pool much longer than they used to. But when you begin to encounter lots of these graying workforce members in the flesh and blood, you begin to grasp the magnitude of the paradigm shift.

Among a few earlier generations I could cite, folks past the three-quarters of a century milepost weren’t often seen looking for new business. They were seen looking for new shuffleboard partners. They weren’t seeking the right fit for their client mix. They were seeking the right fit in a new set of dentures. They weren’t pounding the pavement. They were pounding Geritol.

Anchored expectations

Those thoughts were still resonating when I got wind of a new study into attitudes about saving and retirement. Academic research has long shown a link between how long people expect to live and the age at which they hang ’em up. The new study takes this recognition a step further, examining how folks arrive at their estimates of their own life expectancy. These estimates, it turns out, have a number of significant implications for the quality of their retirement finances.

Like George, it appears, most people anchor their retirement expectations to the longevity of their forebears. They base the expectation of how long they will walk this mortal coil on how long their parents postponed the inevitable.

This has an impact on both retirement planning and retirement behaviors. It also suggests that efforts targeted at increasing knowledge about longer life expectancies may also increase the percentage of folks who plan on working longer.

Using data on people ranging in age from 50 to 61, a team made up of two researchers at the Center for Retirement Research and a Boston College doctoral student confirmed individuals base at least some of their expectation of how long they will live on the length of their parents’ lives. On average, men tend to think they have a seven-in-ten chance of living to 75, based on their parents’ lives. That guides their plans to retire at an average age of 64. Those who think they have half those odds plan to retire about four months earlier, on average. This “subjective life expectancy” also influences women’s retirement plans.

Not so fast

The study notes, however, it might be foolhardy to base subjective life expectancies on the age at which our parents passed away. “Life expectancy has risen rapidly in recent decades, so people are living longer, ” the authors noted. For instance, a 65-year-old man today can expect to live to age 84, or about four years longer than men of that age in their fathers’ generation lived.

If you’re among those who expect, based on family history, to live well into your 80s, 90s or beyond, personal finance actions and behaviors that all people are encouraged to embrace should be observed even more religiously by you. These actions go well beyond simply seeking the most optimal high-yield savings accounts or the best credit cards.

Here are just a few:

  • Start saving earlier. Given the power of compounding, getting started on a saving regimen earlier rather than later can make a huge difference in the bucks you’ll carry into retirement. It can be hundreds of thousands — or more.
  • Be careful about fees. Loads, commissions, fees and other expenses can seriously pare your stash of savings over time. If you’re expecting to live a long time, be particularly suspect of any charges that will erode your nest egg.
  • Delay taking Social Security. Lots of people jump at the chance to claim their Social Security checks at age 62. That’s far from the best course of action, say retirement planning experts.

If you have sufficient savings to allow yourself to delay beginning the stream of checks until close to age 70, you’ll add almost 80 percent to the amount you receive each month vis-à-vis what you would have earned if Social Security was taken at the earliest possible age. And you’ll lock that sum in for the rest of your life.

Remember the old line that went, “If I knew I would live this long, I’d have taken better care of myself”? It seems that might apply to financial health as well as physical health. In other words, you might be best advised to save as if your life will be long, even if you think it may be comparatively short.

That’s the long and short of it!

5 Responses to “Longevity logic and retirement rationales”

  1. Anonymous

    I read your blog, good advice about 70 and all if one is allowed to work until they are 70..My husband of 40years (soon May 2014) was harassed and treated like he was living in south Africa before any mention of apartheid, they simply don’t want employees in their 50’s and 60’s in many retail jobs period..Many manufacturing jobs are gone completely, my husband still is in a union, they are trying to screw around with his pension so far so good..but we see the writing on the wall..He was the last to be in a union in a grocery store job in our whole county, he was resented ,he got better hours, better pay, better pension and vacation, after he retired they don’t offer anything like that due to that shithole called WALMART!!!!!!!!!!!!!!!!!!!!!!! If one has a job in a civil service then one can work until one is 90 but pretty much private enterprise is against older workers I know too, I saw it in many jobs I had after about 24 years in a federal job, it was horrible how they treated females who wanted to work and were forced to get social security before 65 or fight like hell to get to 65, absolutely horrible, why keep a seasoned smart older employee when one could pay them little if they were under 18 or just over 18 and dumb, no benefits, no pay and really no job..So your advice on investments and working until 70 is really only for those few who are still in decent paying jobs, represented by a union or civil service jobs with rights, not for private jobs at all…..

  2. Anonymous

    Professionally I want to be like George when I reach his age. Financially I don’t. No reason we have to take both together. I accumulated enough to cover my lifetime living expenses when I hit 40 and I’m still working at 50. Why? Just because you can afford to not work doesn’t mean you have to stop. It’s not the paycheck that brings me in every morning, it’s the ability to create something that I’m really good at. On the other hand if I ever get tired (or sick), or just want to take a few years off, getting time off is easy. Hopefully George stays healthy and happy with his work.

    When to start saving? As soon as you have any income at all. In a tax-deferred index fund history says your savings will double every seven years. For the typical 21 year old college grad who’ll retire at 70, every dollar saved from his first paycheck multiplies 2^7 (over 100-fold) when he’s taking it out as a required minimum distribution. Sure he’ll earn more as he gets older, but less time for compounding means (far) less of a gain in value.

    Fees along the way are bad, but the worst of all these: a large student loan burden. Why? That’s your earliest money, all those loan repayments from your first hundred paychecks is money that your future self will never see. By the “double every seven years” rule, that 10K student loan balance costs you a cool million at age 70. I’m not saying don’t go to college– just keep your borrowing to the absolute minimum to get your diploma. The bank is not doing you any favors by letting you take out more, in fact it’s robbing your future self.

  3. Anonymous

    Great article. I really liked what you said about fees eroding the nest egg. I’ve been helping people with Medicare choices for the last few years, and I’ve noticed that the increasing cost of medical care is another factor to watch out for. As we live longer, our bills at the hospital tend to happen closer together.

  4. Anonymous

    I was just talking about this with a co-worker yesterday. Some co-workers still have grandparents alive in their upper 90’s. Those co-workers are planning to work and retire at the traditional age or later. I haven’t had a living grandparent since I was in high school. My father retired at 55 and Alzheimers symptoms began to appear at 67. I’m working hard and saving as much as I can so that I can retire early before my genes catch up with me!

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