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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 approximately 1,200 people and 10 focus groups by MIT AgeLab and Transamerica. The traditional three-part plan of education, work and retirement, which aims to ensure people have enough to live comfortably in retirement, does not take into account Americans’ growing longevity, the report concludes. Instead, the researchers behind the report argue for focusing on three factors: wellbeing, work and finances as the three key stages of adulthood.
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Americans are live much longer than their grandparents and great-grandparents, with average life expectancy growing from 68 years in 1950 to almost 79 years in 2009. This longer lifespan is accompanied by longer retirements. While a man who retired in 1970 lived less than thirteen years, the average retirement life for men in 2020 was almost 19 years. Someone who will be 65 in 2023 has about a 50% chance of living another two decades.
This trend is expected to continue. Although there were approximately 92,000 people over 80 in America in 2020, this number is expected to nearly triple in less than 25 years, reaching an estimated total of 270,000 Americans over the age of 100 by 2045. In other words, if they reach age 67 stop working, they could retire for as many as 33 years.
To get an idea of how long 33 years can be, consider that George HW Bush was president in 1990, Madonna was at the top of the charts, and the No. 1 TV show was “Cheers.”
“Although 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,” says Dr. Joseph Coughlin, director of MIT AgeLab. “More than ever, planning for longevity means understanding what matters most at each stage of adulthood, finding balance and supporting priorities with the behaviors and actions that lead to a better future.”
Phil Eckman, president of Workplace Solutions at Transamerica, said that “the way we approach our lives and the way we work is changing. People want flexibility and freedom of choice in all parts of their lives, both at work and at home.”
Traditional financial planning was built around what was, by today’s standards, a relatively short period of time pension. This meant that the focus was on leisure time, and that a savings pot was built up that was sufficient to finance what now seems like a relatively short retirement. But now that retirement duration has increased substantially, this phase of life is dynamic rather than exclusively focused on leisure.