Mar 24, 2022 4 min read

When planning retirement, the single most important factor is estimating longevity.

That is how long are you and your spouse going to live.

According to the Social Security Administration, a man who reaches 65 today is estimated to live until he is 84. A woman turning 65 today is expected to live, on average, until she is 87. In addition to that, 25% of all 65 year olds will live past 90 and 10% will live beyond 95.

Centurions are one of the fast-growing income groups in the country. Modern medicine, a cleaner environment and healthy living habits all contributed to these statistics.

This makes financial planning for this longer life expectancy very important.

Spending too much money early in retirement can put you at risk of running out, while spending too little means you might not have as fulfilling a retirement as possible. If we knew for sure exactly how long we would live, planning would be easier. Since there is no way to know, we have to make reasonable estimates based on individual facts.

People who have not saved much for retirement might have to consider working a little longer. This extra time could increase the amount of money you have saved, and could permit building more credit with Social Security or a possible pension. Most workers are at or near their highest earning just before retirement. The part-time jobs we see seniors working such as a guide at a campground may sound less stressful, but they often pay much lower income than you full-time working career.

Eighty percent of men die married, while 80% of women die single.

This is an important fact to remember when doing retirement planning. This is because women often marry men a few years older than themselves and woman of the same age often lives four to six years longer than a man. If you visit a nursing home there are many more woman than men as residents.

Planning for retirement after the death of the first spouse is very important. Income will go down at the first death because one Social Security check will be lost. The good news it will be the smaller one.

The bad news is living expenses go down very little. Property taxes, home maintenance and utilities do not go down. Income taxes usually go up substantially. This is because the survivor gets half the personal exemption and tax brackets are only about half as wide. The amount of taxes can easily triple what the couple was paying before the first death.

This situation can happen much earlier in life than you might expect. In fact, the average woman becomes a widow at 59.

The best way to deal with these issues is to have a written financial plan. This planning is even more important today with a fully priced stock market, exploding inflation and rising interest rates.

The biggest risk many people do not even know they are exposed to is sequence of returns risk. This is when the stock market suffers a correction right before or early in retirement. When you have to start taking money out of the market to live on or because of required minimum distribution, the timing of a correction can destroy your savings.

Make sure your family is prepared.

Your Financial Future is written by certified financial planner Gary W. Boatman, MBA and CFP, who also wrote the book, “Your Financial Compass: Safe Passage Through The Turbulent Waters of Taxes, Income Planning and Market Volatility.” If there is an area that you would like to see discussed in the column, send your suggestions to gary@BoatmanWealthManagement.com.