I t seems hard to foresee what life will look like in the year 2124, but on average, a child born today will live to see such a world. Let that sink in for a moment. Life expectancy has been increasing over time. People today die at around 80, 30 years ago it was 74, and 60 years ago, 66. Extrapolating this into the future means a person born today will live to 104 on average. Those currently in their twenties and thirties today will on average make it to 100.
We are living longer thanks to exponential advances in medicine. Each generation sees enormous leaps and bounds in the eradication of deadly diseases. Soon cancer, dementia and Alzheimer’s may be tamed. Even the way COVID vaccines are being developed and administered would have been unimaginable not too many years ago.
Living longer is wonderful. Science is awe-inspiring. But it’s concerning that the age at which we retire has not kept pace with living longer. The ratio of people in the workforce to those retired is currently 8:1; at our current pace, by 2050 things will be closer to 4:1. As a society, we are not financially prepared for this longevity.
A retirement that lasts longer than your working years is not realistic, yet that is the path we find ourselves on. There are many elements that make a 40-year retirement difficult. First, it’s an awfully long time to live without working. Also, there’s the worry of reduced expected market returns and uncertainty in the current social safety nets we have come to depend on.
So how should we live our lives instead?
The simple solution is to work longer and retire later. That sounds easy, but work can be stressful and have serious impacts on our health — both mentally and physically. Perhaps we need to rethink not only how long we work, but the pace at which we work. We’ve been sprinting towards this idea of retirement in our 60s, but now we find ourselves in a marathon. Current and future generations may need to consider balancing periods of high stress work with periods of lower stress work — or even time completely disconnected from work in the form of sabbaticals. In fact, perhaps dividing your life into a period of full-on work and then complete retirement isn’t the way to think about things going forward.
In addition, there’s no way around swallowing the medicine that’s good for us: Those currently working need to prioritize a higher savings rate. The status quo of saving 10%-15% of a paycheck may not cut it, and 30% may be where things need to be. Saving more of each paycheck will lead to healthier budgets and lifestyles over the long haul.
Diversifying lifetime income might also be sensible. One interesting idea is the Longevity Annuity. You deposit money today, and in exchange an insurance company will start paying you a lifetime income at a pre-determined future date.
Others might begin leaning more heavily on the equity in their homes in the form of a Reverse Mortgage. The problem here is that fees can be upwards of 4% of what you receive. But with dependability of pensions and Social Security in question, all options need to be considered if we wish to continue our current vision of retirement.
Lastly, focus on the people you love. Relationships are going to be so important later in life, and most of us will need to depend on our loved ones for care in our ensuing later years.
Our advice: Save more, spend less, find time to relax, don’t sweat the little things, and cherish the people in your life.