The longevity of Americans is increasing. The average lifespan of someone born in 1950 was 68.2 years. Someone born in 2020 can expect to live 77.3 years.
Increased longevity means changing financial planning needs, especially since increases in quality of life aren’t keeping up.
According to the World Health Organization, a healthy life expectancy (HALE) – or the number of years someone lives free from serious disease – is only 63.1 years.
There’s a huge difference between lifespan and what some medical and financial professionals call healthspan.
According to these numbers, Americans are spending nearly 20% of their lives in less-than-optimal health.
How do longevity and healthspan factor into financial planning?
The large difference between longevity and healthspans of Americans means that looking into long-term care coverage is a must.
Research differs on the exact statistics for how much you’ll need, but the U.S. Administration for Community Living reported in 2016 that 20% of people who are age 65 right now will need more than five years of long-term care before they die.
And someone who is 65 today has a 70% chance of needing at least some long-term care for the remainder of their life.
However, a more recent paper from Boston College, which I wrote about a few months ago, painted a somewhat less grim picture.
Long-term care is pricey, so this is not an expense to leave out of your financial plan. A semi-private room in a nursing home facility runs about $6900 a month, while a room in an assisted living facility is about $3600 a month. Even a home health aide can run about $21 an hour.
In addition to planning for long-term care expenses, make sure all of your important estate planning documents are kept up to date.
These include a will, a durable power of attorney, and especially a healthcare power of attorney, which names the person who can make medical decisions on your behalf if you become incapacitated. Make sure to name a backup healthcare POA too.
Don’t plan by yourself
You should work with a financial advisor to come up with a financial plan that includes a personalized retirement withdrawal strategy that considers your expected longevity and healthspan.
There are many possibilities to consider when developing your drawdown approach.
Some of the most common are the 4% withdrawal strategy, a fixed-dollar or fixed-percentage approach, and the income-only method, among others.
Your withdrawal strategy must strike a delicate balance between providing sufficient money to live, but not too much (or else you risk running out of money).
Not sure where to begin? Get started today by requesting a no-cost, no-obligation review of your financial situation or existing financial plan with our Oakmont Blueprint process.