March of the Centenarians
The oldest known living person in the United States, a 114-year-old Pennsylvania woman, was celebrated as an “amazing spirit” when she recently died. The title of “oldest living” was immediately bestowed upon an Ohio woman who is 113.
While those two women and their attained ages are exceptional, what is truly amazing is how many people have reached age 100 or older and that people are increasingly doing so.
The United Nations reported in 2015 that the world was home to nearly half a million centenarians – those who are age 100 or older -- more than four times as many as in 19901. Half a million is more than the populations of Iceland, the Bahamas or Brunei, to name a few countries.
By 2050, the number of the world’s oldest citizens is expected to reach a projected 3.7 million, the UN projects. Call it the March of the Centenarians.
The lady who passed away was remarkable in that she reportedly took no medications, according to reports. She attributed her longevity to good food, her faith in God and her church. Unfortunately, she had been living in a nursing home since 2004, a fate that may befall many of us as we age and live longer lives.
Longevity is therefore both a blessing and a curse. While many of us would love to live a long and healthy life, enjoying our favorite activities, friends and family for far longer than the actuarial tables predict, the reality is that most people wind up needing more and more care as they age. And that care is becoming increasingly expensive and burdensome.
Take long-term care. The cost of a semi-private room in a nursing home is $235 per day or $7,148 per month, whereas a home health aide charges approximately $135 per 8½ -hour day, according to the Genworth 2017 Cost of Care Study.2 Family care is less expensive, which is why approximately 65.7 million Americans say they are involved in helping care for family and friends, the American Psychological Association reports 3. But there are no easy solutions.
Meanwhile, medical costs continue to rise. A 65-year-old couple retiring in 2017 will need an average of $275,000 in today’s dollars to cover medical expenses in retirement, according to Fidelity Benefits Consulting 4. Those cost estimates apply to retirees eligible for Medicare and do not include potential costs for nursing home care.
The lesson to take from these inconvenient facts is that financial advisors and their clients need to use the longer stairways to heaven we are building to accumulate more wealth to fund our longer and more expensive lifespans. That means starting to save for retirement earlier, potentially working longer, and really taking a long-term view of what it takes to prepare to retire.
Saving earlier can make a big difference. Consider, for a moment, a 35-year-old earning $60,000 a year and saving 10 percent of her income in a 401(k) plan. The worker will accumulate $855,331 at age 67 based on earning an average of 7 percent a year before retirement, generating 4 percent a year during retirement, receiving a 2 percent salary increase every year, and replacing 75 percent of pre-retirement income.
While accumulating nearly $1 million in retirement savings may seem impressive, the reality is that the money will run out at age 76, approximately 10 years before the average woman’s life span. The projection is based on the assumption that retirees need to replace at least 75 percent of their pre-retirement income to continue their lifestyles in retirement.
But what happens if that same person starts saving 10 years earlier, albeit at a lower salary? At 25 years old and earning $40,000 a year, with all other assumptions remaining the same, the worker will accumulate $1,173,740 at age 67. By starting 10 years earlier and saving a smaller amount at first, she saves $318,409 more. More important, there’s enough money to last her until age 86.
Advisors who support retirement plans need to put a special emphasis on reaching out to Millennials and younger workers who have time on their side. Convey not only the likely costs of a longer life but the possibilities and economies of preparing sooner rather than later. Make retirement accessible by making it consumable, in bite size chunks over a very long time.
Of course, there are no guarantees that any of us will live to 100 or later. But by starting to save sooner and planning for the possibility of a longer life, it’s possible that longevity can be a blessing. Let’s get started on building that stairway today.
E. Thomas Foster Jr. is head of strategic relationships for retirement plans for Massachusetts Mutual Life Insurance Co. (MassMutual).
1 World’s centenarian population projected to grow eightfold by 2050, http://www.pewresearch.org/fact-tank/2016/04/21/worlds-centenarian-population-projected-to-grow-eightfold-by-2050/
2 Genworth, “2017 Cost of Care Survey,” June 2017, https://www.genworth.com/aging-and-you/finances/cost-of-care.html
3 What Do Family Caregivers Do? American Psychological Association, http://www.apa.org/pi/about/publications/caregivers/faq/family.aspx
4 Retiree health care costs continue to surge, Fidelity, Sept. 6, 2017, https://www.fidelity.com/viewpoints/retirement/retiree-health-costs-rise . Estimate based on a hypothetical couple retiring in 2017, 65 years old, with life expectancies that align with Society of Actuaries' RP-2014 Healthy Annuitant rates with Mortality Improvements Scale MP-2016. Estimates are calculated for "average" retirees, but may be more or less depending on actual health status, area of residence, and longevity. Estimate is net of taxes. The Fidelity Retiree Health Care Costs Estimate assumes individuals do not have employer-provided retiree health care coverage, but do qualify for the federal government's insurance program, Original Medicare. The calculation takes into account cost-sharing provisions (such as deductibles and coinsurance) associated with Medicare Part A and Part B (inpatient and outpatient medical insurance). It also considers Medicare Part D (prescription drug coverage) premiums and out-of-pocket costs, as well as certain services excluded by Original Medicare. The estimate does not include other health-related expenses, such as over-the-counter medications, most dental services, and long-term care. Life expectancies based on research and analysis by Fidelity Investments Benefits Consulting group and data from the Society of Actuaries, 2014.