Longevity turns traditional financial planning on its head: MIT AgeLab study

Retired couple enjoying time together outdoors.

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According to new study of approximately 1,200 people and 10 focus groups from the MIT AgeLab and Transamerica. The traditional three-part plan of education, work and retirement, which aims to ensure that people have enough to live comfortably in retirement, fails to take into account the increasing longevity of Americans, he concludes. Instead, the researchers behind the report advocate focusing on three factors: well-being, work and finances as the three main phases of adulthood.

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Americans are live much longer than their grandparents and great-grandparents, with average life expectancy increasing from 68 years in 1950 to nearly 79 years in 2009. With this longer lifespan comes longer retirements. While a man who retired in 1970 lived less than 13 years into retirement, the average length of retirement for men in 2020 was almost 19 years. Someone who is 65 years old in 2023 has about a 50% chance of living another two decades.

This trend is expected to continue. While there were roughly 92,000 octogenarians in America as of 2020, that number is expected to nearly triple in less than 25 years, to an estimated total of 270,000 Americans over 100 by 2045. In other words, if stop working at age 67, they could spend up to 33 years retired.

To get an idea of how long 33 years can last, consider that in 1990 George HW Bush was president, Madonna was at the top of the music charts, and the #1 TV show was “Cheers.”

“Although Americans are generally optimistic about their future, they may not fully appreciate the extent to which their financial needs, priorities and life circumstances will change over time,” said Dr. Joseph Coughlin , director of the MIT AgeLab. “More than ever, planning for longevity means understanding what’s most important at each stage of adulthood, finding the balance, and supporting those priorities with the behaviors and actions that lead to a brighter future.”

Phil Eckman, president of Transamerica’s Workplace Solutions, said, “The way we approach our lives and the way we work is changing. People want flexibility and choice in every part of their lives, whether at work like at home.”

Traditional financial planning was built around what, by today’s standards, was relatively short retirement. This meant leisure was the focus, building an adequate nest egg to fund what now looks like a relatively short retirement. But now that the length of retirement has grown substantially, this phase of life is dynamic and not just focused on leisure.

“Adulthood is when customers can begin to celebrate the goals they were saving for, such as a dream vacation or more time to spend with family, but still a time when many should be prepared to live for several more decades,” the report concluded. .

This means that retirees can use financial advisors as coaches to understand the complexity of this stage of life. They can also help them understand the different ways they can “prioritize social, emotional and physical well-being in relation to economic or work goals in the next 10 years of their lives,” according to the report.

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Man in his 50s thinking about retirement

Midlife adults face complex and emotional challenges, from striving to advance their careers to caring for children and parents. With this variety of challenges, it’s not surprising that this cohort reported the lowest rates of exercise and said they ate healthily less often than any other age group. One implication is that people in this group should work with their financial advisors to set priorities to ensure they are taking care of themselves, both financially and otherwise.

“Financial professionals can serve as agenda planners for middle-aged clients, helping them anticipate
needs, challenges and future celebrations,” the report states. “For example, financial professionals can support clients in a current caregiving role, while helping them anticipate a later time in life when they may need care .”

The study also found that this cohort tends to be motivated to invest in their well-being, establish themselves in their short- and long-term careers, and start save for key financial milestones.

Younger adults can benefit by using the advice of financial advisors to adopt new habits, routines and attitudes that will prepare them for both the near and far future. They should also work with financial advisors to build an adequate emergency fund and increase their net worth.

Young woman talking to her financial advisor.

Retirement it’s not just about money. Longer lives mean retirement will be much more dynamic than the leisure focus our parents and grandparents had. Increasingly, it’s more about overall well-being. This is something that includes having an adequate nest egg, but increasingly it is about relationships, personal goals, health and career opportunities. The report finds that getting financial advice at every stage of adulthood is key to a well-being retirement.

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