Longer life expectancies also mean longer retirements

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When planning for retirement there are a myriad of important issues to consider, including the increasing length of retirement, the high probability of one spouse outliving the other for an extended period, and a shift in how Americans envision retirement.

“When I first started in the profession thirty-five years ago, people viewed retirement as the end of work and the beginning of other things like travel,” said Elizabeth Thorley, founder and CEO of Thorley Wealth Management in Pittsford. “Now retirement is increasingly a steppingstone for doing something different like a second career or pursuing a hobby or passion that’s been developing over the years.”

This shift is partly because people are living longer. Due to an overall increase in life expectancy over the past several decades, a person who is 65 today is expected to live to about age 85, whereas someone in 1940 would be expected to live until they were 79 according to the Retirement Industry Trust Association.

This means, with the increase in life expectancy, the amount of time you spend retired is going to be longer (a recent 2022 Gallup poll shows the average age of retirement in the United States is 61) giving you more time to do things like pursue a passion project.

“Planning along the way is the smart thing to do,” said Mark Colgan, wealth advisor and founding partner of Montage Wealth Management in Pittsford. “Think hard about goals and what you want your life to feel and look like in retirement. What do you want? Whether it’s vacations, family memories, tranquility … plan for the experiences now.”

Ashley Sullivan, a private wealth advisor at LVW Advisors in Pittsford, works with clients at all stages of the retirement journey, from Gen-Z’ers just graduating from college to Baby Boomers in their retirement years.

“Good planning can happen all along the way,” Sullivan said. “It’s never too early to start planning for retirement. I always encourage my clients to have their children and even their grandchildren meet with me so I can answer some of their questions like, “Why should I sign up for a 401(k)?”

Sullivan notes that another big change in retirement planning over the past few decades has been the downward spiral of the pension. Until the 1980s many Americans relied on pensions to carry them through retirement. This began to slowly change in the years following a 1978 tax change called Internal Revenue Code, Section 401(k).

According to the Bureau of Labor Statistics, from 1980 to 2008, American workers with pension plans fell from 38% to 20% and those with defined contribution plans (ex. 401k’s) rose from 8% to 31%. Today, only 7% of retirees have what the National Institute of Retirement Security calls the “ideal situation” of retirement income, which is the trifecta of a pension, savings (including 401k), and Social Security.

“The death of the pension plan has increased the dependence on you as the saver and increased dependence on personal financial planning,” Sullivan said. “My advice is to start saving young — as soon as you have access to a 401(k), start putting money away.”

Another important piece of advice from all of the financial advisors featured in this piece is to have a solid understanding of the rising costs of healthcare, as well as Social Security and how to structure it.

“I consistently see people ignoring or not understanding healthcare costs,” Colgan said. “People, unfortunately, underestimate the costs and may not be educated about the true cost of assisted living or elder care. Twenty-four-hour care, for example, adds up fast.”

Understanding whether or not to delay one’s Social Security disbursements up until age 70 to receive a larger percentage of monthly benefits is just one of the important conversations retirement professionals recommend having before retirement.

“Medicare and Social Security used to be thought of as no-decision points, now there are lots of things to consider,” Thorley said.

While there are online calculators and sophisticated software programs that can help you determine Social Security maximization, they don’t take into account variables like your health or your specific family dynamics — for example, do you have a former spouse whose Social Security benefits you may be eligible for if you outlive them? These are variables a financial advisor will consider.

“Today a financial advisor needs to do more than just run numbers, they need to think about lifestyle, goals, family makeup, health issues – especially long-term care, and more,” Thorley said. “Some of the conversations are not always comfortable, but they’re necessary.”

One uncomfortable conversation for some is the subject of one spouse outliving the other. In 2021, life expectancy at birth for males was 73.2 years and that of females was 79.1 years, according to the National Center for Health Statistics. The difference in life expectancy between the sexes was 5.9 years in 2021, increasing from 5.7 in 2020.

The reality of one spouse most likely outliving the other for several years raises important subjects, like making sure Social Security is maximized for the widower, discussing inheritance as it relates to second marriages, and examining whether or not it makes sense to leave assets to a surviving spouse (sometimes it doesn’t due to the implications on taxes or Medicaid).

Questions like these, along with the more immediate questions following the death of a spouse,  were in part what prompted Colgan to write a book: Death’s Red Tape: Your Guide for Navigating Legal, Financial, and Personal Transitions When a Partner Dies. In addition to his professional experience in handling the loss of a partner, Colgan has personal experience – his first wife Joanne died in 2001 of congenital heart disease when he was 31 and she was 28.

“Having gone through the loss of a spouse myself I realized the estate and planning industry wasn’t addressing a lot of the practical issues,” said Colgan, whose book helps with those practical issues like obtaining a death certificate and notifying credit bureaus of the death. “I thought, my clients shouldn’t have to go through the same thing.”

Colgan also stresses that it’s important for both members of a marriage to have a relationship with their chosen financial advisor so that when one dies trust has already been established and the surviving partner already knows last wishes and the financial plan.

Caurie Putnam is a Rochester-area freelance writer.