The risk of living too long

Older Americans must address the very real risk of living too long, of outliving their assets. Consider: In 2005, a 65-year-old male in 2005 could expect to live on average another 16 to 18 years, while a 65-year-old woman could expect to live on average another 19 to 21 years.

What’s even worse, though, is that most Americans are not factoring in the odds that they may live past life expectancy. For instance, a 65-year-old man has a 41% chance of living to age 85 and a 20% chance of living to age 90, according to published reports. A 65-year-old woman has a 53% chance of living to age 85 and a 32% chance of living to age 90. And, when it comes to a married couple, there’s a 72% chance that one of them will live to age 85 and a 45% chance that one will live to age 90. And if that wasn’t bad enough, there’s an 18% chance that one of them will live to age 95.

Sadly, however, most Americans — two in three — underestimate the possibility that they will live to average life expectancy. And that suggests that many Americans are likely unprepared not only for living to life expectancy, but into their 80s or 90s.

Those folks will learn, perhaps too late to do anything about it, that they have not saved enough money. Or perhaps, they will have to return to work or stay in the workforce to maintain their standard of living. Or perhaps, they will be forced to reduce their standard of living as they live past average life expectancy or whatever age they planned on living to in retirement.

To be sure, planning for the possibility that you might outlive your assets might seem like a difficult task. After all, you really don’t know how long you’ll live in retirement. It could be 20 or 30 years. Or it could be much less.

Excerpted from Robert Powell, MarketWatch