Longer retirements don’t always lead to greater happiness.
Rising life expectancies have led to a significant increase in the length of the average retirement, according to The Motley Fool’s research on average retirement age. In 1970, the average man was retired for 12.8 years, while the average woman enjoyed 16.6 years of retirement.
As of 2020, the average man spent 18.6 years in retirement, while the average woman lived for 21.3 years after retiring. It sounds like a good thing, and for some it is. But these longer retirements also pose a potentially devastating problem.
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Can you afford a longer retirement?
Longer retirements cost more money, and even a few years can make a substantial difference. Let’s say you plan to spend roughly $50,000 per year in retirement in today’s dollars, and you expect inflation to be about 3% annually. Based on this, a 15-year retirement would cost a little over $1.235 million.
A 20-year retirement would bring the total estimated retirement costs to nearly $1.487 million. You’d need to save an extra $252,000 to cover those five extra years.
Now, you won’t have to come up with all that money on your own. You’ll have Social Security to help you out, and your investments will probably increase in value over time. But you’ll still need to save quite a bit more on your own to fund that longer retirement.
That’s a big problem for many workers. The median retirement savings across all age groups is just $87,000, according to The Motley Fool’s research on average retirement savings. Older adults aren’t much better off. Those aged 65 to 74 had a median balance of $200,000 in 2022, while those aged 74 and older only had $130,000.
Many of these individuals risk running out of money prematurely. Then, they might have to rely upon government benefits or other family members to support them through the rest of their lives.
What you can do
It’s best to be optimistic about the length of your retirement so you can avoid under-planning. While 18.6 to 21.3 years might be the average length of retirement right now, some people spend 30 or more years in retirement. You may want to assume you’ll spend at least 25 years in retirement unless you have good reason to believe otherwise, like a serious health issue. And if you don’t use all your savings before you die, you’ll have extra to pass on to your heirs.
Once you have a retirement savings target, work to meet it. This will likely require monthly retirement contributions. You may also get some help from a 401(k) match if your employer offers one.
If you can’t save as much as you’d like for retirement, do the best you can. When you get a raise, increase your retirement contributions first. You can also try to boost your contributions by 1% of your salary per year.
The pros and cons of planning for a shorter retirement
Delaying retirement might seem like a good strategy if you’re worried about running out of money prematurely. There’s a good reason for this. Delaying retirement reduces the cost, and it gives your existing investments more time to grow. Plus, you’ll have a few more months or years to defer money to your retirement accounts.
But delaying retirement isn’t always feasible. Our research found that the average senior retired about five years earlier than they planned. This can be due to health issues, job loss, or family caretaking requirements. In these instances, continuing to work may not be an option.
That’s why you need to to save as much as you can for retirement now, even if you hope to remain in the workforce for a while longer. You may also want to prioritize your health and your professional skills to give yourself the best chance of remaining in the workforce until you’re ready to retire.
