millennials

2 ways increasing lifespans affect #millennial retirement plans

Est. 6 min read

If you could know when you’re going to die, would you want to know? Don’t worry, we’re not about to launch into bad speculative sci-fi (we’ll leave that to Justin Timberlake). Instead, we’re going to talk about your retirement plan – which, depending on your perspective, isn’t much better.

First, the bad news you may have seen recently: everyone is dying faster! Remember how female #millennials were supposed to live to see 90? No more! Now, you’ll only live to see 89.6. The world shudders.

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Such a small change, especially when death rates are volatile (as Bloomberg points out, a bad flu season can significantly change mortality rates), hardly seems worth writing about. But having an idea of when you’re going to die allows you to plan for how you’re going to live, specifically after you retire. When you’re trying to save enough money to keep you afloat during retirement, the difference between living to 89 and living to 90 can be tens of thousands of dollars.

Unfortunately, there’s no death clock that can pinpoint the exact moment you’re going to die. Even the Society of Actuaries, which produced the estimates above, can only give you an average. (The recent Gilmore Girls reboot has a joke in the second episode about actuaries predicting the exact moment of death down to the hour. This isn’t how actuaries work. This joke really bothered me and maybe three other people, none of whom are fun at parties.)

It’s crucial, however, to have a solid understanding of how long you can expect to live after retirement. Despite this year’s mild setback of 0.6 months, it’s likely that your lifespan will actually creep upwards towards 100 years or more, what with the advances in medical technology that we can’t even imagine yet.

Here are two big ways that this increase will affect your retirement plans:

You’ll work after your expected retirement age

Remember when people had retirement parties, where they shook hands with old colleagues, received a gold watch from the boss, and then never worked for another day in their life? Yeah, me neither. Traditional retirement, at this point, barely exists, and the traditional retirement age of 65 or 68 should be thrown out the window. For heaven’s sake – this past election featured two candidates who were 69 and 70 years old, and they were campaigning to get a job that lasts at least another four years.

Luckily, the vast majority of #millennials already know they won’t be hanging up their cleats at 68. Only 23% of millennials plan to completely stop working after retirement, according to a Transamerica Center study, and my guess is that they either don’t know any better or they’re already rich enough that they don’t have to work in the first place. (This actually isn’t that different than how Gen X or Baby Boomers think about retirement – only 22% of Gen Xers and 21% of Baby Boomers envision a retirement without some type of employment.)

The reasoning behind working past retirement age isn’t just about money. Forty-seven percent of #millennials plan on working past retirement so that they can stay involved with something they love to do, according to Transamerica. That’s great, mind you – if you have to work from age 22 to 82, you might as well try to make it something you care about.

You need to save aggressively

In case you forgot, you’re pretty much entirely responsible for your retirement savings. Whether it’s through a 401(k) or an Individual Retirement Account (IRA), you need to put aside your own money now so you have money to live off of later.

Let’s say you’re one of the 23% who plan to stop working at age 65. If you live to age 90, that’s 25 years of expenses that you need to plan for.

This should go without saying, but that’s a lot of money.

You save some big chunks of money here and there. By then, your student loans will hopefully be paid off, as well as your mortgage. Any other debt should be paid off by then as well. But other expenses will be higher – medical expenses and long-term care, for example, can be a huge drain on your budget, especially as scientific advancements make it possible to live longer with complications.

Luckily, saving this money is not impossible. It just requires aggressive and disciplined saving. Difficult, yes, but not impossible.

Start with your employer-provided 401(k), if you have one. 401(k)s are tax-advantaged retirement savings accounts that are only available through your employer. Additionally, many employers offer a 401(k) company match. What this means is that, up to a certain point, your employer will match your 401(k) contribution with their own contribution. Every company does this a little differently – one example is a 100% match of your contributions up to a certain percentage of your income (typically between 3 and 6%). Other companies do a 50% match or, if you’re truly lucky, a dollar-for-dollar match of every contribution with no limit.

All of this is to say that you need to understand what you’re getting out of your 401(k) and to make sure you’re not leaving money on the table. Even if you don’t like how your 401(k) provider invests the money or think the fees are too high, you’ll probably lose more money by not taking advantage of a generous company match.

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If you don’t have a 401(k), or your company doesn’t match contributions, you should look into IRAs. It’s really easy to set up an IRA online through a robo-advisor like Betterment or Wealthfront (read our head-to-head review here). No one matches contributions to your IRA, and there’s a limit to how much money you can throw in there, but you do have the benefit of controlling how this money is invested. Plus, like 401(k)s, both traditional IRAs and Roth IRAs are tax-advantaged.

How much do you actually need to save? That depends – and it leads us right back to where we started. If you’re planning on being retired for 25 years, you need to be able to pay your expenses for 25 years. If you want an annual income of $50,000 during retirement, you’ll want to save at least $1,250,000 by age 65 – not even counting for inflation.

A daunting number like that helps us understand why #millennials should keep track of how old they should expect to live, and remember that your retirement age can be a moving target. Not only that, but you should expect and look forward to being relevant in the workplace into your 70s and maybe even your 80s.

Next step? Find a fee-only financial advisor that you trust. They may suggest looking into a few insurance products that can help mitigate some of the risks that pop up with both planning for retirement and actually experiencing retirement. Long-term disability insurance, for example, can provide you with income if you experience a serious illness or injury that prevents you from working. This helps keep your retirement savings on track. Another product to look into once you hit your 40s and 50s is long-term care insurance, which can help you pay for expenses associated with a chronic illness that aren’t covered by Medicare or health insurance.

A financial advisor’s predictions of the future may not be as fun as a big sci-fi blockbuster, but they will be infinitely more useful.

Published on December 8, 2016

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Adam Cecil writes for PolicyGenius, a digital insurance brokerage trying to make sense of insurance for consumers. You can read more of his writing on his site.
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