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The fact that Americans are living longer has made conventional approaches to financial planning obsolete, according to a A new study by MIT AgeLab and Transamerica of nearly 1,200 people and 10 focus groups. It concludes that the traditional three-pronged plan of education, work and retirement and ensuring that people have enough to live comfortably in retirement fails to take into account the increasing longevity of Americans. Instead, the researchers behind the report advocate focusing on three factors: well-being, work and finances as the three main stages of adulthood.
Americans are Living a very long time Compared to their grandparents and great-grandparents, the average age has increased from 68 years in 1950 to nearly 79 years in 2009. Along with these longer lifespans comes longer retirements. While a man retiring in 1970 lived less than 13 years in retirement, the average length of retirement for men in 2020 was about 19 years. Someone who is 65 years old in 2023 has about a 50% chance of living for two more decades.
This trend is expected to continue. While there were about 92,000 octogenarians in the U.S. by 2020, that number is expected to nearly triple in less than 25 years, to 270,000 Americans over 100 by 2045. In other words, if they stop working at age 67, they can spend a maximum of 33 years in retirement.
To get a sense of how long 33 years can be, consider that in 1990 George HW Bush was president, Madonna topped the music charts and the No. 1 TV show was “Cheers.”
“Although Americans are generally optimistic about their future, they may not fully appreciate how much their financial needs, preferences, and life circumstances will change over time,” Dr. said Joseph Coughlin, director of the MIT AgeLab. “More than ever, planning for longevity means finding balance at each stage of adulthood with what’s most important, and supporting priorities with behaviors and actions that lead to a better future.”
“It’s changing the way we approach our lives and the way we work,” said Phil Eckman, president of Workplace Solutions at Transamerica. People want flexibility and choice in all parts of their lives, both at work and at home.
Traditional financial planning was built around what, by today’s standards, was comparatively small Retirement. This meant that leisure was the focus, to fund a nest egg that now looks like a relatively small retirement. But now that the length of retirement has increased considerably, this stage of life is dynamic rather than solely centered around leisure.
“Older age is when clients can begin to celebrate goals they’ve been saving for, such as dream vacations or more time to spend with family, but is still a time when many may live for several more decades. should be prepared for,” the report concluded. .
That means retired persons can use it Financial advisor as coach To understand the complexity of this phase of life. They may be able to “help them understand different ways to prioritize social, emotional and physical well-being over financial or work-related goals over the next 10 years of their lives,” according to the report. According to the report.
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A person in their early 50s is thinking about retirement
Midlife adults face complex and emotional challenges, from trying to advance in their careers to caring for children and parents. With such an array of challenges, it’s not surprising that this group reported the lowest exercise rates and said they ate less healthily than any other age group. One implication is that people in this group should work with their financial advisors to manage priorities to ensure they are taking care of themselves, financially and otherwise.
“Financial professionals can act as agenda setters for clients in midlife, helping them anticipate Future needs, challenges and celebrations,” the report said. “For example, financial professionals can both support clients who are in a caregiving role today, while helping them anticipate a time later in life when they need their care. can.”
The study also found that this group is motivated to invest in their well-being, establish themselves in their careers in the short and long term, and get started. Saving for major financial milestones.
Young adults can benefit from using the advice of financial advisors to adopt new habits, routines and attitudes that will prepare them for the near and far future. They should also work with financial advisors to build an adequate emergency fund and build their net worth.
Young woman talking to her financial advisor.
Retirement It’s not just about the money. Longer lives mean that retirement will be far more dynamic than the leisure focus of our parents and grandparents. At most, it’s more about the overall well-being. It’s something that includes having the right nest egg, but it’s increasingly about relationships, personal goals, health and vocational opportunities. The report found that getting financial advice at every stage of adulthood is key to a retirement characterized by wellness.
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Keep an emergency fund in case you incur unexpected expenses. An emergency fund should be liquid — in an account that isn’t exposed to significant fluctuations like the stock market. The trade-off is that the value of liquid cash can be reduced by inflation. But a high-interest account allows you to earn compound interest. Compare the savings accounts of these banks.
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