Three of my great-grandmothers lived into their late nineties. And my two grandmothers are both 86 — and in great health. So barring a tragic accident, my gene pool suggests that I have a good shot at a long life.
It's great news for people who, you know, like living. But it's also a frightening prospect to contemplate that the money you retire with at 65 might need to last you for 35-plus years. That's why we spoke with financial experts to get the lowdown — decade by decade — on how to properly plan for a lengthy life, so you can celebrate your 100th birthday in style and financially worry-free.
The race to 100: Run your retirement numbers
The first thing you should consider doing, whether you're 25 or 65, is a retirement calculation, which helps you to determine a ballpark figure for how much you need to sock away for those golden years, says Nancy Anderson, a Certified Financial Planner™ with LearnVest Planning Services.
"When you run the calculation, plug in age 90 or 100 as your life expectancy," Anderson says. "And be sure to repeat the calculation every year." Why? Because you might need to adjust the amount of money you're saving, based on changes in your income or living expenses — variables that can change from year to year.
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Once you've figured out that number, it's time to look at the key things you should think about doing each decade of your life to help reach that goal. And, as you'll see, there are plenty of tricks that you can do — regardless of age — to help get you to that "I'm going to live to 100″ retirement figure.
What you should do … in your 20s
Start socking away for retirement. "The earlier that you begin saving for retirement, the better off you will be," says Katie Coleman, an Ameriprise financial adviser. "In your twenties, it's important to maximize on employer-sponsored retirement plans by meeting or exceeding your employer's match while you're young."
Be tightfisted with your dollars. "Grabbing coffee or a smoothie every day might not seem like much, but it can really add up," Anderson says. "Instead, budget for a few things that bring you great value — like a pampering day at the spa — and save or invest the money that you'd normally spend on daily indulgences."
Pay off high-interest debt. "Get current on late payments, and aim to pay off credit card debt, collection accounts, judgments and tax liens, so you can have the cash flow necessary to help achieve your future financial goals, including contributing to your retirement account," says Harrine Freeman, author of How to Get Out of Debt: Get an "A" Credit Rating for Free. "Then, keep any new debt that you incur at 15 percent or less of your monthly income after taxes."
Try to save more than 10 percent of your income. "Saving 10 percent is no longer enough — you need to be saving 15 percent to 20 percent per year for retirement," says Tom Hegna, author of Paychecks and Playchecks: Retirement Solutions for Life. "It's the money saved in your twenties that will allow you to retire in your sixties."
What you should do … in your 30s
Continue to max out your retirement savings, but if you can't … Set up automatic increases for contributions to your retirement accounts. "If you can't save the maximum, allocate what you can — and then increase your contribution by 1 percent every six months," says Anderson. "This way, you'll eventually get up to the maximum in a painless way!"
Look into life insurance. "By properly planning what you want to leave to your kids and loved ones today," Hegna says, "it gives you license to spend your money during retirement." There are two types: permanent life insurance or term life insurance. "Term life insurance is like renting a home — you pay the premium, and if you die within your contractual period, your family receives a death benefit. And the premiums are relatively small up front, but they increase as you get older," explains Hegna. "Permanent life insurance is more like owning the home. As long as you pay the premiums, and adhere to the rules of the policy, it's yours to keep. Some types of permanent life insurance also have a cash value and pay dividends, so it's important to explore the options."
Build a cash reserve that's separate from your retirement fund. "Having at least six months to a year of expenses in a savings account can help protect you and your retirement nest egg when an unforeseen event arises, such as unexpected home repairs or a health emergency," Coleman says. "Proactively planning for emergencies will help minimize the impact that they could have on your retirement."
What you should do … in your 40s
Max out your retirement savings. "It's essential to continue taking advantage of your 401(k) and IRA," says Hegna. "These plans offer incredible tax-free growth advantages, and it would be foolish not to maximize your contributions to these accounts if you're financially able to do so." Still not convinced? Consider a hypothetical $1 investment that doubled every year for 20 years, explains Hegna. At the end of 20 years, that investment would be worth over $1,000,000. However, with, say, a 15 percent tax on the growth, that same investment would only be worth around $220,000.
Buy your home instead of renting. "If you plan to stay in your neighborhood, and you don't own your house, consider buying," Anderson says. "If you purchase your home at age 40, and have a 30-year mortgage, it will be paid off by the time you are 70. So if you live to 100, you'd have 30 years without a mortgage payment. You might have some home equity, to boot, and your housing costs will have been fixed from the age of 40."
Look into long-term care insurance. "You have to qualify for it based on your health, so don't wait until it's too late, when a serious illness could disqualify you," Hegna says. "The odds that you need some form of long-term care between now and the day you die is 72 out of 100 — yet less than 30 percent of Americans over the age of 45 have purchased long-term care insurance!" Without it, adds Hegna, you could waste your entire retirement portfolio on unforeseen but devastating health problems or disabilities.
What you should do … in your 50s
Consider where you want to retire, and if possible, move there! "See if you can transfer through your current employer or find a great job near your desired retirement community, so you can develop roots in the new neighborhood," suggests Anderson. "Many people are working longer — especially when you have a long life expectancy — so if you have to work a few years longer, at least you are in your own special paradise." When choosing where to retire, adds Freeman, look at cheaper states or income-tax-free ones, such as Florida, Nevada, Alaska, South Dakota, Texas, Washington, Wyoming, New Hampshire and Tennessee.
Adjust your investment risk with a financial adviser. "The first five years before and after retirement are mathematically the worst times to lose money," Hegna says. Early on in life, during the accumulation phase of retirement, you have time to recover from market loses. But if you're in that "retirement red zone" right before and after retirement, a significant market loss will likely have the biggest impact. "You will either have to put in more, take out less or work longer to avoid running out of money," explains Hegna.
What you should do … in your 60s
Downsize your lifestyle. "Scale back expenses at least three to five years prior to your retirement date in order to reduce spending by 30 percent to 50 percent," Freeman says. "Trade in a luxury car for a cheaper model or move to a smaller home. Get in the habit of buying more needs versus wants — and delay large purchases until you save enough to cover the cost."
Analyze when it's best to take Social Security payments. "I always say that the breadwinner should delay," Hegna says. Since Social Security benefits increase when a person delays the start time — if you begin collecting at age 62, the benefits will be much smaller than if a person waits until 70. "So for married couples, I always advise the breadwinner to delay taking payments until age 70," Hegna says. "This way, the breadwinner's Social Security lasts for two lives — not one. If you take the check early, it will result in lower payments for both spouses because, when the breadwinner dies, the spouse will begin collecting the breadwinner's Social Security instead of his or her own." One possible exception to this rule? "If a retiree has a serious medical condition that lowers that person's chance of a long life," he says, "this person may want to consider taking Social Security early."
Consider semi-retirement. "Postpone retirement as long as possible, or do a phased retirement by working fewer hours in order to retire gradually," says Freeman. "This way, you'll have supplemental income for the first few years of your retirement."
While these tips are good general guidelines, it's important to tailor a plan that fits your specific financial situation and goals, says Elle Kaplan, C.E.O. and founding partner of Lexion Capital Management. "Every person's retirement plan should be as unique as they are."
Bottom line: Seek out the help of a financial adviser to make sure that you're on the right track — and plan, plan, plan, so that your 30th year of retirement is as enjoyable as your first.
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