Let’s be honest — many of us harbor a secret fantasy of living forever. If we could stay healthy and function intellectually, endless life would allow us to share in succeeding generations’ joys, witness unfathomable technologies (flying cars, anyone?), and assess whether our lives made a lasting impact on the future — our own versions of “It’s a Wonderful Life.” Even shy of immortality, a longer life seems desirable, if it can be lived well. And if we could afford it.
Long-Term Growth in Life Expectancy and Retirement
For many decades, it appeared Americans were on an inexorable path to longer lives. In 1900, average U.S. life expectancy from birth was 47.3 years. By 1950, after childhood infectious diseases were brought under control, life expectancy grew to 68.4 years. As longer lives depended upon addressing the more complicated and intractable causes of adult mortality, progress slowed.1 Nonetheless, average life expectancy grew to 78.7 years by 2015.2
Longer lives, in turn, fostered longer retirements. In 2010, Americans spent 19 percent of their lives in retirement, up from 15 percent in 1962.3 In 2012, a National Academy of Sciences study predicted that, by 2050, Americans’ average life expectancy would climb to 82.2 years and we would spend nearly one-quarter of our lives retired.
When the Data Turned the Wrong Way
More recent data cast doubt on these predictions. U.S. life expectancy remained unchanged from 2012 to 2014.4 Yet, it declined in 2015 and 2016, with men losing more ground than women.5 U.S. life expectancy has slipped on occasion, so brief declines are not unprecedented. But the modern era has not seen another span of stagnation and decline of this length.6 We do not know exactly where life expectancy is heading, but a new and troubling trend may be developing.
Three causes appear to be driving these recent declines in life expectancy: “unintentional injuries” (which includes a staggeringly rapid increase in opioid overdose deaths), suicides, and Alzheimer’s disease.7 Suicides and drug overdoses usually victimize younger Americans, while Alzheimer’s typically afflicts older people. Death rates in 2016 grew significantly for people under the age of 65, and most quickly for those between the ages of 15 and 44. Despite a rising number of Alzheimer’s-related deaths, overall death rates declined significantly for people over the age of 65, especially those over 75.8
What Do Recent Developments in Life Expectancy Mean for Retirement in America?
Until recently, rising life expectancy allowed Americans to enjoy longer retirements. With these recent developments, the question is, would shorter life expectancies mean shorter retirements? The best answer is, probably not. While life expectancy from birth has declined over the past two years, life expectancy after age 65 remained unchanged from 2012 through 2015, and increased slightly in 2016.9 We need more years of data to know for sure, but it’s possible the average duration of retirement may no longer track average life expectancy from birth. Americans who survive to retirement age may live longer thereafter and have the opportunity for longer retirements. By contrast, tragically rising tides of drug overdoses and suicides may keep more Americans from reaching retirement age.
Yet, a longer life does not necessarily mean a longer retirement. There are both good and bad reasons why this is true. On the good side, if a long-lasting trend continues as expected, Americans who live past age 65 will enjoy more disability-free years, on average.10 As a result, it will be easier for many Americans to extend their work lives, as some experts recommend,11 perhaps by taking advantage of phased retirement programs offered by their employers or other forms of part-time work. By remaining employed, these older workers could delay their Social Security benefits (and pension benefits, if they have them) until they reach their maximum levels, and reduce or avoid their spending from retirement savings. Financially, and perhaps emotionally and physically, they will be better off.
On the bad side, some Americans will not be able to afford a longer period of retirement and may be forced to work well beyond their preferred retirement age. As I described in another Financial Freedom Studio post, too many Americans lack adequate retirement savings and incomes, personal assets other than retirement savings, and easy-to-use employer-provided retirement plans. Longer retirements would involve stretching already inadequate resources over more years. Many Americans simply will not be able to afford a longer retirement.
"Longer retirements would involve stretching already inadequate resources over more years. Many Americans simply will not be able to afford a longer retirement."
Lower-income Americans, particularly those whose jobs involve manual labor, are most likely to both suffer long-term health challenges that might inhibit work later in life, and to lack sufficient savings for retirement. Absent government intervention, their only alternatives to working past retirement age would be support from family or a lower standard of living funded only or largely by Social Security benefits. Social Security was designed to replace only a portion of pre-retirement earnings, not to supply a living income on its own.
Added Retirement Risks from the Opioid Epidemic
The rising death toll from opioid and other drug overdoses further complicates the retirement crisis confronting many families. In 2005, 2.5 million children were living with “custodial grandparents,” that is, grandparents responsible for their care. By 2015, that number grew to 2.9 million.12 Opioid and prescription pain reliever addiction has been an important contributor to this increase.13 As a consequence, retirees or near-retirees are being forced to take on the added, substantial, and unexpected expense (not to mention exhausting effort) of raising children. For many, inadequate savings will not only have to be stretched over more retirement years, but also over more family members.
There is also preliminary evidence that opioid use and addiction is driving some working-age Americans out of the labor force.14 Without jobs or income other than government benefits, these workers will not save for retirement, and may not work enough years to qualify for Social Security benefits. If they live long enough, any hope of a well-lived retirement for these Americans is quite small. Further, both retirees and pre-retirees may be forced to dig into their retirement savings to support their adult children and fund medical and rehabilitation expenses, perhaps while caring for their grandchildren. So, the retirement impact could extend beyond the person with a substance use disorder.
Added Retirement Risks from the Rise of Alzheimer's Disease
The rising incidence of Alzheimer’s disease also complicates many families’ retirement plans and finances. The number of Americans with Alzheimer’s could increase by more than 300 percent to 16 million by 2050.15 People with Alzheimer’s commonly need home health aides, adult day service centers, residential care communities, nursing homes, and eventually hospices, over the course of the disease.16 These services can be costly, and may require out-of-pocket payments in addition to help from Medicare, Medicaid, and private insurance. Also, family caregivers — usually the first and primary caregivers — may find it difficult to work while tending to a spouse or parent, which could add to the disease’s cost and impact on retirement savings and spending.
Unlike unpredictable events like opioid addiction or overdoses, retirement savers can plan to minimize the financial risks associated with Alzheimer’s and other debilitating and degenerative diseases. Long-term care insurance and MediGap insurance can cover all or most of the costs of in-home and in-facility care. In a similar way, retirement products like annuities* with guaranteed minimum income benefits†‡ can help fill the gap between Social Security and the income needed to support individuals with Alzheimer’s and their caregiving spouses, partners, or other family members. Retirement savers should partner with an expert financial adviser who is properly credentialed and qualified to provide all of the necessary information about how to prepare for these risks in retirement.
"Retirement savers should partner with an expert financial adviser who is properly credentialed and qualified to provide all of the necessary information about how to prepare for these risks in retirement."
The growth in life expectancy over the past century is an uplifting story about human innovations that range from new immunizations and medications to economic development to technologies in the workplace. Many of us can look forward to further innovations that will further extend and improve our lives, as we live longer with fewer illnesses and disabilities. But the latest data about life expectancy disclose that not everyone may benefit, and that some risks are rising with potentially troubling consequences for retirement and beyond.
To the extent possible, those planning for retirement should seek to mitigate the known risks, like Alzheimer’s disease. However, individuals may not be able to protect themselves against other risks, like opioid addiction and overdose. These Americans need help that requires more than retirement planning can offer.
*What is an annuity:
An annuity is a long-term, tax-deferred vehicles designed for retirement. Variable annuities may involve investment risk and may lose value. Earnings are taxable as ordinary income when distributed and may be subject to a 10% additional tax if withdrawn before age 59½.
† Guarantees are backed by the claims paying ability of the issuing insurance company.
‡ Optional benefits are available for an extra charge in addition to the ongoing fees and expenses of the variable annuity.
Investing involves risk, including possible loss of principal.
The opinions and forecasts expressed are those of the author and individuals quoted and should not be construed as a recommendation or as complete.