A Four-Part Blog Series from Otium Financial Planners

This series explores how longer lifespans, inflation, Social Security, Medicare, healthcare costs and investment planning interact over a retirement that may last 25 to 35 years.

Blog 1: Living Longer: Why Longevity Changes the Retirement Planning Equation

Living a long life is something most of us hope for.

From a retirement-planning perspective, however, living longer changes the math.

A retirement that lasts 15 years is very different from one that lasts 30 or 35 years. The longer retirement lasts, the longer savings must provide income, the more time inflation has to compound, and the greater the likelihood of significant healthcare or long-term-care expenses.

That's why longevity should be viewed not simply as a risk, but as something a good retirement plan should be designed to accommodate.

Americans Are Living Longer

Over the last several generations, life expectancy in the United States has increased significantly. Consider the broad trend:

There have been periods when life expectancy declined, including during the COVID-19 pandemic, but the longer-term trend is clear. Americans today generally live considerably longer than Americans did 50 or 60 years ago.

But there's an important catch when using these numbers for retirement planning.

Life Expectancy at Birth Isn't Your Life Expectancy at 65

Suppose you're 65 and preparing to retire. If you hear that U.S. life expectancy is around 79, you might conclude that you should plan for approximately 14 years of retirement. That would be a mistake.

Life expectancy at birth includes deaths occurring at every age. If you've already reached 65, you've survived all the mortality risks that existed during the first 65 years of life.

According to the CDC, someone who reached age 65 in 2024 could expect, on average, another 19.7 years of life. That takes the average 65-year-old to approximately age 85.

Women generally live longer than men. A 65-year-old woman had an average remaining life expectancy of approximately 20.8 years.

Most importantly, these numbers are averages, not expiration dates. Many people will live considerably longer.

For Couples, the Planning Horizon Can Be Much Longer

Retirement planning becomes even more interesting for married couples. The financial plan usually doesn't need to last until the first spouse dies. It may need to last until the second spouse dies.

That creates what financial planners call joint longevity risk. Research from the Society of Actuaries has illustrated just how significant this can be for a healthy, nonsmoking 65-year-old couple.

How Long Should a 65-Year-Old Couple Plan For?

The exact probabilities vary according to health, smoking status, sex and other factors. But the financial-planning lesson is more important than the precise percentage:

A couple retiring at 65 has a meaningful possibility that their retirement assets will need to support at least one spouse for 30 years or longer.

What Happens When the First Spouse Dies?

There's another complication. Household expenses don't usually decline by 50% when one spouse dies.

Property taxes don't get cut in half. Neither does the cost of replacing a furnace, repairing a roof or maintaining a home. Utilities, insurance, transportation and many other costs remain.

Income, however, can decline substantially.

Social Security is a good example. If both spouses are receiving benefits, the surviving spouse generally receives the larger benefit rather than continuing to receive both checks.

A household receiving $3,500 and $2,000 per month in Social Security could go from $5,500 per month to $3,500 after the death of one spouse. That's a 36% decline in Social Security income, even though household expenses are unlikely to decline 36%.

That's why survivor planning is an important part of retirement planning.

A 30-Year Retirement Changes Everything

Consider a couple retiring at 65. If their retirement lasts until age 80, their portfolio needs to help support approximately 15 years of retirement. If one spouse lives to 95, it needs to support 30 years.

Over those 30 years, they may experience several recessions, multiple bear markets, periods of higher inflation, changes in tax laws, rising healthcare costs and unexpected major expenses.

Longevity doesn't create all those risks. It simply gives those risks more time to appear.

Longevity Is Also Good News

It's important not to lose sight of something in all these statistics. Living into your 80s or 90s can mean decades to travel, spend time with grandchildren, volunteer, pursue hobbies and enjoy the retirement you've worked to achieve.

The purpose of longevity planning isn't to make people afraid of living too long. It's to create a financial plan that allows them to enjoy those additional years with greater confidence.

Don't Build a Plan Around the Average

Life expectancy statistics are useful for governments, insurance companies and large populations. They're much less useful as an expiration date for an individual retirement plan.

A retirement plan that works well if someone dies at 84 but struggles if that person reaches 94 may not provide enough margin for longevity.

Retirement planning should consider a range of potential lifespans, particularly for married couples whose assets may need to support the household until the second spouse dies.

Otium Financial Planners can help you evaluate how longevity, Social Security, investment withdrawals, taxes and healthcare expenses fit together in your retirement plan.