Why it's never too early to plan for a long life

You’ll need to start preparing early for a retirement that could last 30 or more years.

How long will your retirement last? Probably longer than you think. Increasing longevity is extending the typical retirement by decades. Men and women in the United States today are retiring, on average, in their early 60s and often living into their 80s or 90s, with dreams of spending that post-work life ticking off items on their bucket list. “The quality of your life in retirement is really going to be driven by how much you save and invest today,” says Joseph Tantillo, director, Retirement & Personal Wealth Solutions, Bank of America. Here is a six-point guide to building up a nest egg that could help you live out your days in comfort, without fear of outliving your money.

Set a high savings target

From a distance of several decades, it’s difficult to know exactly how much money you’ll need for retirement. “But chances are you should be saving more, even earlier in your career,” notes Nevenka Vrdoljak, director, Chief Investment Office, Merrill and Bank of America Private Bank. Americans historically have saved about 6% of their income on average, Vrdoljak points out, compared with the 15% or more it may take to reach your retirement goals. To get to that high mark as quickly as possible, start by increasing your retirement plan contributions with every raise and make sure you’re saving enough to collect the full employer match.

Look beyond your retirement accounts

Participating in your company’s 401(k) or other retirement plan can take you a long way toward building up enough savings to support a long retirement, Tantillo says. Aim to hit the maximum tax-deferred contribution — $19,500 a year in 2021 ($26,000 for those 50 and up).

But you don’t have to stop there. Tantillo suggests also considering using a health savings account (HSA) as a secondary retirement account. With a qualifying high-deductible health plan, you can establish an HSA and contribute as much as $3,600 a year in pre-tax money in 2021, or up to $7,200 with family coverage. And if you’re age 55 or older, you can contribute an additional $1,000 annually. While you can take tax-free withdrawals from an HSA to cover certain medical expenses now, you can also allow funds to accumulate and continue to grow. “Some people, who can afford to pay health costs without tapping the HSA, let that money accumulate for retirement,” Tantillo says.

Invest with an eye on your goals

How you invest the funds you’ve earmarked for retirement will likely shift over the years. With an eye toward a long life, your goal is growth early on. You may feel comfortable allocating a portion of your savings to stocks, which have historically outperformed other assets over long stretches. Then, as you get within a decade of retirement, you may want to have separate strategies for different portions of your savings, says Vrdoljak. One of your goals could be creating a lasting lifetime income.

Prepare to work longer

Working a few years longer is one way to hedge against outliving your assets, says Vrdoljak. That gives you more time to save money and a shorter retirement to support. “Working two to three years longer could mean you have a much more comfortable retirement,” she says. But holding and finding a job after your mid-50s can be tougher. One out of three job seekers over age 55 has been out of work for half a year or longer, while only 20% of younger job hunters count themselves among the long-term unemployed. A solid strategy for staying employed on your schedule is to keep refreshing your skills — your tech know-how, in particular — throughout your career.

Invest in your health

Staying as healthy as possible can not only help you stay on the job longer but also cut down on what you’ll spend on medical care in retirement. Yet the flip side of a long life is that seven in 10 Americans will ultimately need long-term health care. That can be expensive — the cost of a U.S. nursing home can top $100,000 a year. “You need to consider and plan how you’ll handle the potential expense,” says Vrdoljak. That’s especially important for women, who outlive men by a few years, on average, and pay nearly $200,000 more in health-care costs than men over their lifetime.1 That might mean saving even more money so that you can pay those expenses out of savings, or purchasing long-term care insurance or life insurance with a long-term-care rider years before you need any assistance. Those policies may help defray the cost of a nursing home or even home care when you can no longer fully care for yourself.

Delay claiming Social Security

Social Security is a crucial tool for managing longevity risk because your benefits rise with inflation — and are guaranteed to last as long as you do. “Deciding when to claim Social Security benefits is probably one of the most important decisions about retirement you’ll ever make,” says Vrdoljak. That’s because the longer you wait until age 70, the more you’ll collect. At age 62, your benefits will be three-fourths of what you would receive at full retirement age or age 66 for those born between 1943 and 1954. Claiming at age 70 would give you a 32% bonus. By registering at ssa.gov now, you can get projections of your future Social Security benefit at any age. You can use these projections in your retirement planning or discuss them with a financial advisor.