“The need for accuracy in assumptions applies not only to income and assets, but also longevity. As Gen Xers recognize that they may live longer than their Silent (1925-1944) or Boomer (1945-1964) parents, the longevity assumption could be the key to success.”
Now that Generation Xers are reaching their fourth and fifth decade, they are starting to take an interest in retirement planning. For some, that means creating a team of professionals, which typically include an estate planning attorney and an accountant. This team concept runs contrary to the formerly independent style of Gen Xers, says Forbes in a recent article “Beware of ‘Garbage In, Garbage Out’ In Your Retirement Planning.”
Everyone on the team needs to be mindful of accuracy. In developing a retirement strategy, many planners use software programs that break out income, savings, investments and other parts of the retirement puzzle. This helps them see if the client has followed all the necessary steps to create a retirement plan.
That plan should include an estate plan, including a will, health care power of attorney, power of attorney and other estate planning tools, depending on the family’s situation and level of assets.
The retirement plan is usually based on the information provided to the professionals doing the analysis. However, just as a doctor can’t get a proper diagnosis without a patient providing accurate information, a retirement plan or estate plan can’t be done correctly without all of the right information.
As Gen Xers are helping their own boomer parents cope with the changes and challenges of their 70s, 80s, and 90s, the longevity factor becomes clear. When these generations did their retirement planning, the assumption was that retirement would last one or two decades. The idea of living into the late 80s or 90s was not a common experience. However, that has changed.
When the first Boomers were born, the average lifespan was 63.3 for men and 67.9 for women. Seventy five years later, the average lifespan has increased dramatically. A male baby born in 2019 is now expected to live to age 76, while a girl will likely live to 81. That’s almost a 14 year increase.
Gen Xers may insist that their retirement planning extend well beyond their 60s and 70s. In fact, they need to consider living to 100.
Another issue to be considered—joint life expectancy. Most couples do not pass away at the same time. Factoring in longevity of the surviving partner is critical. Challenge your advisors, legal and financial, to create plans that will work during the early years of retirement, when spouses are likely to be well and active, and the later part of retirement, when medical costs may be higher and more care will be needed.
Reference: Forbes (October 14, 2019) “Beware of ‘Garbage In, Garbage Out’ In Your Retirement Planning”