When people think about retirement planning, they often focus on the age they want to stop working and how much money they have saved. But there's another question that can be just as important: How long will that money need to last? You may know when you plan to retire, but you can't know exactly how long you'll live. That uncertainty makes longevity an important consideration when building a retirement income strategy.
Longevity Can Change the Plan
Two people who retire at the same age can have very different retirement timelines. One person might need their retirement resources for 15 years, while another could need them for 30 years or longer. A longer retirement can affect how quickly savings are withdrawn, how much income needs to be generated, and how much flexibility a retiree may need for unexpected expenses.
Your Spending May Change Over Time
Retirement spending isn't necessarily consistent from beginning to end. Some retirees may spend more during their early retirement years on travel, hobbies, entertainment, or other activities. Later, spending patterns may change. Healthcare and long-term care are also expenses worth considering because needs can change as you get older. You can't predict every future expense, but recognizing that spending may change can help you avoid building a retirement budget around one fixed number.
Income Is About More Than Savings
A retirement income strategy can include multiple sources. Social Security, pensions, investment accounts, savings, and other financial resources may each play different roles. Some retirees may also consider products designed to provide income according to contractual terms, such as certain annuities. The terms, fees, withdrawal provisions, and guarantees vary by contract, and guarantees are subject to the claims-paying ability of the issuing insurance company.
Plan for the Possibility of a Long Retirement
You don't need to know the exact number of years your retirement will last to start planning for longevity. Instead, consider what your finances might look like if you live longer than expected. The goal isn't to predict your future perfectly. It's to build a retirement strategy that accounts for uncertainty and gives your income and savings the best opportunity to support the life you want for as long as you need them.
Source: Social Security Administration
