At 97, Cathy Schuh’s father does Sudoku, the crossword, plays bridge weekly and is a whiz on the computer. The former chemical engineer and his wife, Ms. Schuh’s mother, live in an assisted living community in Illinois — they’re fortunate to have the help they need now that she, a former teacher, has dementia at 93.
“My father says he is spending my inheritance,” said Ms. Schuh, 65, who lives in Ann Arbor, Mich. “I say, ‘Go for it.’”
Witnessing her parents age well into their 90s has had a profound effect on how Ms. Schuh (pronounced shoo), an occupational therapist, is planning for her own next chapter. She’s laying the groundwork now: decluttering and donating, strengthening her social bonds and her body — she can lift 440 pounds on the leg press and has taken up swimming.
Ms. Schuh plans to continue to work until she’s 70, delaying Social Security, which will help her and her husband stretch their income further. Fortunately, she enjoys her job and it’s flexible enough — she can ferry her father to the doctor when needed.
With Americans living ever longer lives, the age-old worry of outliving savings has become more pronounced, particularly when retirement can last for three decades or more. People who have already reached 65 have an average life expectancy of more than 86. For a 65-year old couple, there’s a 64 percent chance that at least one partner will live beyond 90, according to research tools from the Society of Actuaries Research Institute and the American Academy of Actuaries.
“Longevity used to be a pleasant abstraction in retirement planning conversations,” said Lucy Valandra, director of operations with Copper Beech Wealth Management. “Now it’s a central assumption.”
Retirement planning has always been challenging — there are so many unpredictable variables, not to mention the escalating cost of medical expenses, housing and long-term care. But instead of focusing on the unknowns, it’s more productive to focus on what you can control.
Some, like Ms. Shuh, are taking notes from their elders, embracing the future with more deliberate and thoughtful planning. Plenty are developing second or third acts that will enable them to continue to generate some income but on their own terms. Others have decided to try to insure the longevity risk — and anxiety — away, turning to products like annuities that they may have been skeptical of in the past.
The current moment, with rising energy prices, the prospect of inflation and ongoing market volatility, coupled with an unpredictable political establishment in the backdrop, has elevated stress levels. Add to that Social Security’s looming financing shortfall, which, if left unaddressed, could reduce benefits by more than 20 percent in less than eight years.
“Looking back over the last 100 years, the ground always seems to be moving beneath our feet,” said Cameron Willcox, a financial planner in Denver. “Retirees need to ensure they have enough safe assets to weather turbulent economic times.”
But, he continued, “as people live longer, they must ensure parts of their portfolio are built for growth to at least keep pace with long-term rising prices.”
The challenge is striking the right balance. There are a variety of ways to get there, which are often highly personal. The planning may be rooted in research and science, but it’s also driven by what feels right. Here are just a few things to consider, and the paths some people have taken.
Spending Plans
How much retirees can safely spend each year from their investment savings has long been subject to debate, and continues to evolve.
One long held rule of thumb has held that retirees could safely spend 4 percent of their initial retirement portfolio balance, while adjusting that amount for inflation each year thereafter — and the money would last 30 years. But that can lead to both overspending and under spending.
Though they say the 4-percent rule is still a good starting point, many financial planners are now leaning toward more dynamic withdrawals, which tend to align with human nature anyway. When the markets are performing well, retirees can spend modestly more — and the inverse is true when it drops below certain thresholds.
Some people crave more certainty. After working for nearly four decades as a flight attendant, Katrin Venema, 65, wanted the comfort of a guaranteed paycheck in retirement. “My dad is 97, my mom just turned 90,” she said. “They never expected to live this long and are now facing the possibility of running out of money.”
That, coupled with the current economic uncertainty, prompted her to consider an annuity. After reviewing several options with her 401(k) plan administrator, she rolled over $300,000 into an annuity that begins on her 67th birthday and pays $2,000 monthly for the rest of her life.
If something happened to her, the income would be paid to her husband (or another beneficiary), for 20 years.
“That was important to me,” she said, though she acknowledged the payments would lose purchasing power over time because they were not adjusted for inflation.
Many finance experts like the simplicity of single premium immediate annuities and deferred income annuities because they’re straightforward and easy to compare — unlike the sketchy, high-cost versions that often make misleading or exaggerated claims.
David Blanchett, the head of retirement research at Prudential Financial, advocates buying enough of an income stream to cover essential expenses that Social Security doesn’t cover. But it pays to shop around — at the moment, some of the highest-rated insurers, like Guardian and New York Life, are providing the most generous payouts, he said, which isn’t always the case.
Insuring Longevity
Chuck McLean, a 71-year-old retired statistical analyst in Virginia, said his wife, Regan, 70, recently retired from her second act as a certified personal trainer at the local Y.M.C.A. “There is simply no reason to think she won’t live well into her 90s or beyond,” he said.
A few years ago, they bought longevity insurance, where you essentially pay an insurer in exchange for a stream of guaranteed income that begins at least a year into the future — and perhaps as late as 85. Also known as deferred income annuities, they have larger payouts than immediate annuities (that begin right away) and let retirees spend their savings more freely, knowing the annuity payments will kick in later. But one potential risk is if the retiree doesn’t live long enough to collect anything (and then heirs won’t receive anything, either).
The McLeans diverted a quarter of their pretax savings into the product, or a “qualifying longevity annuity contract,” which would begin paying them in 2033.
“It was hard sending that money away,” Mr. McLean said, but there were tax advantages, and they are more comfortable spending their savings knowing that income will start later.
Long-term Care and Hybrid Policies
Though many aging people may need assistance in their homes or in a facility, be it for daily tasks or because of cognitive decline, just a fraction of Americans have long-term care insurance — it’s often expensive, and premiums can skyrocket over time, causing some people to trim back their benefits so they can continue to afford their policies. Medicaid covers long-term care if you have little money or assets, but Medicare does not.
Tim Paulson, a 76-year-old in Los Angeles, has stuck with his long-term care policy, which jumped nearly 44 percent over the past two years — though he could have paid less if he was willing to reduce his benefits.
“Despite a reputation among family and friends of being a worrier, I must also have an optimistic streak,” said Mr. Paulson, who continues to work as a real estate agent, “because my biggest fear is that I will live to be 100 and run out of money.”
His policy costs nearly $4,700, while his wife, who has a chronic condition, pays nearly $6,300. That buys them a benefit of up to $322.50 daily for six years.
John Scott, 60, and his husband, 68, pay about $2,800 annually between them for a shared three years of coverage. Given their age gap, “there was a risk that we would spend down our savings if he needs long-term care when he’s older, putting me in a precarious financial position as I approached my own old age,” Mr. Scott, of Austin, Texas, added. “The long-term care policy helps mitigate that risk.”
(Here’s more information on how to approach long-term care insurance.)
Getting Help
Having a sounding board to figure out what works best for your situation can be therapeutic. Financial planners can also spark conversations and thought exercises to help envision what retirement may look like and what’s realistic. The key is finding the right type — namely, one that serves as a fiduciary, or puts your interests ahead of their own, and that charges for their time and service, not when they sell products.
For Deborah Banks, of Oneonta, N.Y., it was well worth the cost — she and her husband pay their adviser a flat fee each quarter. He has helped consolidate and diversify her and her husband’s investments, and suggested she wait to take Social Security.
“This enabled me to retire with peace of mind,” she added. “No worries about whether we are spending too much or not managing our money well.”