Living to 100: Financial planning for a longer lifespan

Medical journal The Lancet reported a story that's been widely covered by major news outlets: According to The Lancet, more than half of all babies born in the U.S. (and other industrialized countries) since 2000 will live to be 100 years old.

Once a milestone only a handful of seniors reached, this new triple-digit benchmark will become downright commonplace by the time this century winds to a close. Half of all babies born in this country in 2007 will live to be 104 years old.

While the novelty factor is high ("Grandpa, tell us again how there was only one channel of the Internet when you were growing up!"), this announcement has far more serious implications for today's Americans -- both young and old -- when it comes to managing their personal finances. The Lancet study's lead author called the news good for individuals but challenging for societies.

First, a bit of history: While improvements in lifespans over the first half of this century were largely due to decreased infant mortality, longer living today comes on the back end. While the nation braces for the aging of the Baby Boomers, a process that's only just begun and has huge implications on everything from Social Security to health care, the impact of the next wave will be even greater. Fortunately, the study indicates that not only are people living longer, they're staying active longer; in other words, 70 could be the new 40 by the time your kids are adults.

What does this brave new world mean for your personal finances -- and that of your children? Walletpop spoke with John Rother, executive vice president for policy and strategy at the AARP, and asked him to weigh in on the implications for tomorrow's seniors.

First of all, Rother says U.S. workers should embrace the notion of an older retirement age. "If you're going to live to 100, then retiring in your 50s isn't a good idea," he says. Instead of retiring at 62, the current average, today's young Americans should consider 67 -- or even older -- as a more realistic age to exit the work force. Those extra five years can make a big difference if you're planning to fund a 35-plus-year retirement.

Rother also says the next generation of seniors should look into annuities as a way to manage their money, since there's a greater chance of outliving your savings if you live to 100 or older. The AARP also advocates automatic enrollment in employer-sponsored retirement savings programs to help Americans prepare for their future.

Since the next generation of seniors will have to stretch their savings over a longer time period, they should also avoid being too conservative in their investments, Rother advises. Holding a nest egg in cash or CDs over four decades or longer is likely to be a losing proposition once the rate of inflation is factored in.

In addition to investments, 21st-century seniors will see big changes in their housing options. Reverse mortgages, which are currently marketed heavily to seniors, will likely fall out of favor. With people typically living to 100, it simply won't be feasible for mortgage companies to keep paying people to stay in their houses for that many years. As the AARP's Rother points out, reverse mortgages aren't necessarily the best option for seniors with home equity and good credit.

Seniors who don't want to remain in their own homes in the coming decades are likely to have a lot more options, Rother adds. Senior-centric housing complexes that eliminate tough chores like landscaping and maintenance but still let inhabitants retain their independence will become more common as boomers age. As people live longer, that demand will only increase. It's possible that the next real-estate boom won't be in McMansions, but rather in pre-planned communities that offer a combination of individual dwelling areas and community-focused activity areas.

Rother's final piece of advice: "Get off the couch and get involved with other people, outside activities and challenging mental activities." As lifespans lengthen, Americans will want to make sure their extended golden years are active and happy ones. With good financial advice, those "challenging mental activities" don't have to include how you're going to fund your extended retirement.
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