The demographics of life expectancy continue to ratchet up. Just since I started my investment management business 20 years ago, life expectancies in the US have gone up by 3 years. The latest data shows that a 65 year old woman on average is expected to live to 89, and a man to 86 ½. Now that is the average. Which means that half of those people should live longer. The odds that a 65 year old will live into their 90s is very high.
Now ask that 65 year old how long they expect to live. They will probably say 80, as 80 was old when they were kids. But life spans keep getting longer. There will be an upper limit, but not in our lifetimes (joke intended).
A person retiring at 65 will need 25 years of money to last them to age 90, and to play it safe, probably enough to get them to 95. That means doing two things. First, be conservative about withdrawals of retirement funds in the early years, keeping it to 4% a year or so. Second, keeping a growth portion of their portfolio. Some investors have the idea that at 65 they should be 100% in bonds. But particularly with the low rates available now, those investors should have some inflation beating assets. Whether that’s rental property, or stocks, or a share of a small business doesn’t matter. They need something that has growth potential.
Living longer is good news! Let’s not make it bad news by underestimating the demographics of the good news.