Imagine what life would be like if we tacked 15 years onto the official retirement age -- it's not a particularly far-fetched scenario.
Life expectancies soared over the past century, thanks to advances in medical technology. Today the average 55-year-old will live to 82. In the 1930s, most were lucky to make it to 60.
It's this reality that has AIG CEO Robert Benmosche declaring that in Europe, "retirement ages will have to move to 70 [or even] 80 years old," especially in light of the continent's epic debt crisis.
And it's a suggestion the United States will have to consider as well.
The Dilemma: Death or Taxes
The positive news, of course, is that we're living longer. We get to enjoy far longer lives than our ancestors, spending more years with our children, grandchildren -- even great-grandchildren.
The problem is that we're still thinking about retirement like these ancestors did.
For starters, Social Security is an antiquated system. When it was created in 1937, most citizens didn't live past 60. Social Security was set up so that you'd begin receiving benefits at 65 when -- if, really -- you had outlived the normal lifespan.
If the same formula was being used today, you wouldn't be eligible to receive Social Security until you turned 89.
Yet now the same system tries to support folks who retire in their 60s and live into their 80s or beyond. The number of eligible beneficiaries has skyrocketed, and their payouts now span decades.
It simply can't work -- unless taxes are raised or retirement is pushed further out.
Viva la Taxes!
In a bold move, France's new president recently lowered the retirement age to 60. However, France's government concedes that this decision "will cost the state billions of euros a year," paid for by "higher worker and employer contributions."
In other words, the French will pay higher taxes in exchange for shorter careers.
Europe's dilemma will be ours in the U.S. within the next decade. With the way our Social Security system is currently structured, the nation faces a looming retirement crisis that we ordinary citizens cannot resolve. Sure, there are ways you can boost your own Social Security payout. But as a whole, Social Security and the money you will receive from it is something our politicians will have to sort out for us.
In practical terms, we have to decide whether to entrust a greater share of our income to the government during our careers (hoping to get part of it back when we retire) or enjoy more of that income while we work (using the excess to spend and save for retirement on our own).
In other words: Would you prefer to retire at a later age and pay fewer taxes during your lifetime, or retire earlier and pay even more taxes than you already do?
The retirement age issue is not going away. But that does not mean the Social Security conundrum needs to be the single driving force that defines your future, either.
It is within our ability to realistically plan for a life into our 80s, 90s, or 100s. Think of how you'd like to spend those years. Where you'd like to live. What you'd like to learn. New hobbies you'll pick up.
80 Is the New 65: How High Should We Boost Retirement Age?
There's a persistent assumption going around about what happens after one retires: Pundits, financial planners and even retirees often claim that your spending shrinks after you leave the 9-to-5 world.
Sure, your house may be paid off by then, and you may be able to ditch the expenses of commuting and buying clothes for work. That's not the full picture, though.
In good and not-so-good ways, many people end up spending more than they expect during their golden years.
For lots of folks, retirement means finally getting around to doing things you've been putting off for years. And those things cost money.
You may finally do some traveling in Europe, for example, or explore the U.S. in an RV. Want to get serious about your love for curling? Joining a league costs some money. Looking forward to overhauling the garden or taking up woodworking? That'll cost you, too. Even just traveling to visit and spend time with the grandkids can add up -- in travel costs, dinners to treat the family, and gifts and ice creams for the young ones.
Of course, you don't have to bear these costs. You can let the children and grandchildren come to you and can spend more time in public libraries than on golf courses. But the early years of retirement, in particular, are when folks tend to have significant energy and lots of plans.
Unfortunately, many expenses in retirement are not so discretionary.
Health care, for example, can take a huge bite out of your nest egg. Fidelity Investments recently estimated that a 65-year-old couple retiring today can expect to pay, on average, about $230,000 on health care. That's just an average, so you might spend far less -- but you could also spend much more.
Medicare probably won't provide sufficient coverage, so you might need to buy supplemental insurance, which isn't usually cheap.
Meanwhile, though a lower income level will probably mean your income taxes will decrease, you'll still be on the hook for property taxes. And those will probably keep growing over time. If your annual property tax is $3,000 and it grows at 3% each year, it will hit $5,400 in 20 years.
Your home insurance costs will rise, too, along with your car insurance premiums, the cost of heating and cooling your home, groceries, and most other items.
And finally, whereas you might expect retirement to be a time when you're no longer raising children and supporting those dependents, you might still find yourself occasionally -- or routinely -- helping your loved ones out financially.
Still, the news isn't all bad. While you might spend more than you expected to once you retire, you probably won't keep it up. As we move into and then out of our 70s, people tend to slow down and be less active. Less travel, less eating out, and fewer hobbies can mean lower spending.
Throughout most of our retirement, we'll enjoy discounts on various expenses, too, such as movie tickets, meals, and even property taxes.
What to do
Don't let your retirement plan end up designed by assumptions you never questioned. Take some time to map out what your expenses may be in retirement, and to make sure you're saving, investing, and accumulating enough to support them.
Another possibility is working part-time through part of your retirement, which can add income and possibly some useful benefits as well. It also keeps many retirees happier, giving them a social setting to belong to. Downsizing to a smaller home or moving to a less costly town or region can also make a difference.
Spend some time planning now, and you'll thank yourself later.
Psychologist Laura Carstensen, one of the nation's leading experts on aging, recently explained: "We ask 5-year-olds what they want to be when they grow up, teens which college they want to go to, and young adults when they'll get married. But we ask few questions about our lives at 70, 80, or 90."
Yet research shows that those people who do think about how they'd like to spend these later decades -- whether traveling the world, spoiling their grandkids, or learning a new skill or language -- "are more likely to save."
This seemingly small psychological trick will not only get you to save more -- on your own terms -- but it will also get you to make smarter decisions about your health now, which should simultaneously lower your living expenses when you do retire.
Two birds, one stone. And the stone's already in your hand.
This article was written by Motley Fool analyst Adam J. Wiederman. Click here to read Adam's free report on the best ways to ensure and plan for a wealthy retirement.