On Monday, October 27, 2014, the Society of Actuaries issued new estimates of life expectancies in the U.S. A 65 year old female has a life expectancy of 88.8 years, an increase of 2.4 years from the 2000 age projection. Males age 65 have a life expectancy of 86.6 years, an increase of 2 years from the 2000 projections. The good news—we’re living longer; the bad news—we’re living longer.

This increase in life expectancy has financial planning implications. Many defined benefit pension plans are currently underfunded. The Society of Actuaries predicts that the underfunded status of these plans could increase between 4 and 8% because of the increased life span. Defined contribution plans—such as 401(k) and 403(b) plans which shift retirement benefits to the employee’s successful management of funds invested—will require a greater time period of income coverage. Such increased coverage should come from increased savings, more aggressive investment management, delayed retirement, reduced spending in retirement, or some combination of all the preceding.

Syndicated columnist Scott Burns provided additional statistics with planning implications. He quoted data from a 2012 study by the Census Bureau that showed what the average group of 65 year olds could expect by age 80:

          Thirty eight (38) percent will have passed away.

          Thirty four (34) percent will have some form of severe disability.

          Nine (9) percent will have some disability.

          Eighteen (18) percent will have no form of disability.  (There is some rounding error in totals.)

The first three categories may require special financial planning problems. Given their relative likelihood, planning now may be a prudent course of action.

We at Paragon Financial Advisors can help our clients as they plan for their “golden years.” Please call us with questions. We do not sell any products (i.e. insurance, etc.) but we will help clients analyze those options available to them.  Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

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