How to Make Your Money Live Longer Than You Do

By Markets Fool.com

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Source: Catherine Scott via Wikimedia Commons.

Societal changes are afoot. Recent U.S. Census Bureau data revealed that there are about 55,000 centenarians -- people aged 100 or older -- in the U.S., and that number is expected to rise to 442,000 by 2050. Globally, the population of centenarians stood at 441,000 in 2013 and is expected to reach 3.4 million by 2050, according to the United Nations. This information has some meaningful implications for you: You may well end up living longer than you expect, and there are upsides and downsides to that.

Your odds of reaching 100 may not be high, but people are generally living longer and longer. Life expectancy in the U.S. has been hitting record highs lately, reaching 78.8 in 2012, up from 77 in 2000, 73.7 in 1980, and 59.7 in 1930.

The upside of growing really old
The prospect of living a very long time is welcome to most of us. There certainly seem to be a lot of benefits to it: You can see your grandchildren, and maybe your great-grandchildren, grow up. You can enjoy wave after wave of technological and medical breakthroughs -- jet-pack travel, the iToilet, condominiums on Mars, cures for cancer, obesity, and road rage, and who knows what else.

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Have a plan in place to make sure your money doesn't run out. Photo: Flickr user Torbakhopper.

The downside of growing really old
Other than the risk of poor health, one of the biggest downsides of growing very old is that you could run out of money. After all, you might scrimp and save and build a large nest egg to live on once you retire around age 65. But will it be enough to carry you for 20 years to age 85? What about 35 years, should you make it to the 100-year mark?

Figuring out how big a nest egg you need is an imprecise undertaking, as you can't know exactly how long you'll live, what your expenses will be, how investments will perform, and so on. If you overestimate, you may end up having sacrificed more than you needed to in your working life, but you'll leave a nice bundle for your loved ones or charities. If you underestimate, well, you may become a burden to those loved ones.

Inflation is a factor worth considering. It has averaged about 3% annually over long periods of time, though it can be a lot less or a lot more over the short term. If your retirement is an ordinary length, such as 20 years, you may see something that costs $100 now end up costing $181 in 20 years. But if your retirement is 30 or 40 years away, it will likely cost between $243 and $326. A nest egg will be depleted more rapidly when everything costs more than it used to, and any fixed income you receive will be worth less and less over time.

What to do
So what should you do? If you think you may grow very old, there are a host of actions you can take to ensure a more comfortable retirement. For example:

  • You might work a few years longer. That will allow you to sock a few more years' worth of savings into your retirement account, and it will delay the day when you start taking money out of your nest egg, rather than putting money into it. It can also keep you on your employer's health insurance plan longer.
  • You can delay Social Security benefits (and working longer would make this much easier). For every year beyond your Social Security-mandated "full retirement age" that you delay, your ultimate benefit will increase by about 8%. So, although you'll receive fewer checks, you can receive much more in lifetime benefits if you live significantly longer than the average for your peer group. For Social Security purposes, the full retirement age for those born in 1960 or later is 67. (For those born in 1937 or earlier, it's 65, and for those born between 1937 and 1960, it's somewhere in between.)
  • You can save more aggressively and invest more effectively. Socking away 10% of your income may not be enough. Especially for those starting late, 15% or even 20% is a better goal. Aim to have your long-term money -- which you won't need for at least five years -- in stocks, perhaps via a low-cost index fund that will track the market's overall return.Consider, for example, the SPDR S&P 500 ETF , Vanguard Total Stock Market ETF , and Vanguard Total World Stock ETF .
  • Look into buying one or more immediate annuities, as they can deliver pension-like checks every month for the rest of your life. Consider spending more (or receiving less) in order to include adjustments for inflation so that your checks keep their purchasing power over time.

    Stay healthy and you might reduce your healthcare costs in retirement. Photo: Bill Branson via Wikimedia Commons.


  • Another option is a longevity annuity, which you buy when you're not very old and doesn't start paying you until you reach a certain age. If you die earlier than expected, you may never get any money out of the purchase, but if you live a long time, it will start generating substantial income at a time when your nest egg might be a bit thin.
  • Be as healthy as you can. It may sound like a strange piece of financial advice, but it will not only help you make the most of your years, but also keep healthcare costs down, letting you spend more of your money on other things. (Fidelity Investments has estimated that a 65-year-old couple retiring now can expect to pay, on average, about a quarter of a million dollars on healthcare through their retirement. That's an average, so remember that you might end up spending far more or less.)

Give some thought to how you might want to prepare for the possibility of living to age 90, 100, or beyond. Develop a plan and then carry it out. You'll thank yourself later -- maybe when you're attending your great-great-granddaughter's birthday party.

The article How to Make Your Money Live Longer Than You Do originally appeared on Fool.com.

Longtime Fool specialist Selena Maranjian, whom you can follow on Twitter,has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.