A study conducted by the TIAA Institute and George Washington University reveals that over 50% of American adults have no idea how long people tend to live in retirement. Add to this, the same study finds a correlation between “longevity literacy” and planning a financially-secure retirement. Without a clear understanding of your possible longevity, you risk running out of money toward the end of your life when you’re most vulnerable.
Life Expectancy In The U.S.
According to the Social Security Administration, upon reaching age 60, on average, men could live another 22 years while women can live 25 more years. Other studies indicate that genetics can account for as much as 25% percent of your chances of living to age 85 or 90.
Think about it — as a FERS participant, you can retire as young as age 55 to 57 when you meet the years-of-service requirements. This means your retirement nest egg may have to last 30 years or more and be enough to cover the rising cost-of-living, inflation and stock market volatility that can impact your TSP investments.
“Known as the longevity gap, this difference in life expectancy can create a severe loss of income for your surviving spouse.”
The Longevity Gap
You also have to understand how longevity can impact your spouse. According to the most recent data available from the Centers for Disease Control and Prevention (CDC), on average, men’s lives are 5.8 years shorter than women’s lives. Known as the longevity gap, this difference in life expectancy can create a severe loss of income for a surviving spouse.
Under FERS rules, the maximum survivor benefit your spouse can receive is 50% of your base annuity (pension). And when it comes to Social Security, a surviving spouse only receives the higher amount of two benefits if both are collecting checks when one spouse passes away.
How To Mitigate Longevity Risk
It’s simple — longevity risk is the possibility of you and/or your spouse outliving your retirement nest egg. And the solution is obvious: it’s far better to over-estimate your longevity when planning your retirement than running out of money in your golden years.
Strategies for reducing longevity risk include:
- Wait until age 62 to retire to qualify for the FERS 10% Bonus.
- Delay filing for Social Security until age 70 to get the maximum benefit.
- Develop a plan for taking TSP distributions over a long retirement.
- Consider insurance products that can provide another stream of income.
Discuss these and other retirement-planning strategies with an FRC® trained advisor who understands your FERS benefits and can help you achieve lifelong financial security.
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