The number of Americans living to 100 and beyond is expected to quadruple by 2054, according to projections from the U.S. Census Bureau. A century ago, the average lifespan was about 71 years. While it’s true that people are living longer, new research from Nationwide Retirement Institute and The American College of Financial Services — The College — reveals a troubling disconnect — millions face a growing risk of outliving their savings due to poor financial planning.
The study explores the financial implications linked to rising life expectancy and how extending retirement by just five years, from 30 to 35 years, increases the risk of depleting savings by 41%, based on historical market returns. That figure swells to over 300% when using lower projected 10-year portfolio returns, and for healthy, wealthy retirees, that risk intensifies even further.
“Too many people underestimate how long they’ll live—and that blind spot can seriously undermine their financial security,” said Michael Finke, PhD, CFP®, professor of wealth management and co-author of the study. “We consistently see that those who plan for longevity feel more confident about retirement. What are the key drivers of that confidence? Working with an advisor, having access to guaranteed income, and building a plan that’s designed to last.”
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Taking the first step
One of the first steps to preparing financially for a long life is factoring in how long they think they may live into their savings and investment decisions.
Kristi Martin Rodriguez, leader of financial services marketing and the Nationwide Retirement Institute, says, “Just as we encourage healthy habits to support longer lives, we need to help build strong financial habits that ensure people can thrive well into their later years.”
On the plus side, the survey also reveals that if people knew they would live longer, they would take relevant steps to improve their physical and financial well-being:
- 58% said they would adopt a healthier lifestyle
- 67% would pay closer attention to their finances and increase their savings
- 37% said they would delay retirement
- 63% said they would take on less debt
A positive mindset also matters. The research found that optimists are 75% more likely to save at least 10% of their income, illustrating how a positive perspective can drive more financially secure retirements.
Effective solutions exist
The study also highlighted that while 70% of Americans agree that society is not prepared to meet the needs of people with longer lifespans, practical solutions exist and include long-term care (LTC) insurance and guaranteed income products, like annuities and protected retirement solutions, typically available in many employer-sponsored retirement plans.
Nationwide’s research also shows that while 32% believe long-term care insurance would be one of the most helpful resources for preparing to live to 100, only 1 in 10 report owning a policy, according to The College. This is similar for annuities, as only 31% say an investment that guarantees income for life would help them feel more financially secure. Even so, the understanding and use of these products remains stubbornly low.
“As the risk of longevity combined with today’s volatile market environment creates what might seem like a perfect storm for retirement savers, the good news is that solutions exist to provide a measure of certainty in an uncertain environment,” Rodriguez said. “This may be especially true for groups like women, who tend to live longer, score slightly higher in longevity literacy, yet report lower retirement confidence overall.”
This, coupled with the fact that many respondents don’t want to live to 100, citing health and deep financial anxiety, and that roughly three in four fear they’ll run out of money before they run out of time, joint research shows that two out of five non-retired Americans (40%) now say they plan to delay retirement (due to inflation concerns). The math also punctuated a sobering fact: extending retirement by just five years increases the risk of running out of money by more than 300%, according to The College’s analysis. The takeaway: retirement planning needs a major reset.
Life planning strategies
Along with estimating a retirement income based on your lifespan, determine how to maximize your Social Security — take it early, or wait until you reach full retirement age, or even later, when you’re 70. Independent financial planner, Aaron Brask, says, “Delaying Social Security from age 62 to 70 can boost your payout by up to 8% per year, resulting in a benefit that’s 76-77% higher at age 70.”
Consider adding an annuity to your portfolio. An annuity is a contract purchased from an insurance company where you make payments in exchange for a guaranteed income stream, either immediately or at a future date.
Financial experts will advise setting a flexible withdrawal rate. The study shows how longevity risk amplifies every other risk in retirement, primarily by increasing your exposure to market fluctuations and downturns over time. The 4% rule is a common starting point, advising you to save 25 to 30 times your annual spending and withdraw 4% annually, adjusted for inflation. A dynamic withdrawal rate offers even more flexibility. Adjusting your withdrawals based on market conditions — taking more in good years and less in bad — helps your portfolio recover from downturns and extend its longevity.
Other ways to slow the burn are to ease into retirement by keeping one foot firmly in the workforce by working part-time, full-time, or flexible hours when needed. Contribute to a health savings account (HSA). Contributions are tax-free, the money grows tax-free, and withdrawals for medical expenses are tax-free. Keep costs in check now so you have an emergency fund saved for the future.
Prepare for a long and happy retirement
The challenges of planning for longer lifespans are apparent, and as the survey points out, many Americans are financially underprepared to live a long and happy retirement. The findings also come during a period of increased economic uncertainty globally, further complicating the road to financial security. But in the end, maybe our legacy, not our longevity, is what truly matters.
Online life expectancy calculators can guide your financial planning for those later years. For a simple calculator, try using the Social Security life expectancy calculator.
Warren Buffett (who is expected to retire at the end of the year) poignantly said, “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
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