The modern world has changed life in many ways, but one of the most significant changes is the ever rising expected lifespan. As the advances in healthcare, access to clean water and nutritious foods makes people healthier, people will live longer than previous generations. While a longer lifespan is certainly a good thing, longer lifespans will may have unexpected consequences for those who are expecting a certain lifestyle in retirement. In simple terms, the longer a person lives, the more money that he or she will need in retirement.
The average American lifespan is about 78 years. However, this figure is held down by a number of factors including the number of children who die in infancy or at a young age, as well as the teenagers and young adults who die in traffic accidents and as victims of crime. But once a person reaches adulthood, he or she can statistically expect to live beyond the average lifespan. For a married couple who reach the age of 65, it is almost certain that at least one person will live to be at least 80 and the odds are good that one of them will live to be at least 90. At 90 years of a age, a person who retires at 65 will live in retirement for 25 years.
While most people will have fixed Social Security payments in retirement, these payments will likely not be sufficient for a person to live on. This is why people save money in IRAs, 401k and other investment products. When they reach retirement age, they plan on using the money in the retirement account to enjoy life and to pay the bills that their Social Security check will not cover. However, most people will not end up with enough money to last through a lengthy retirement that may last for two or even three decades.
For those who are concerned about outliving their money, there are options to convert lump sum amounts into a guaranteed stream of income. For example, all or part of the money held in a retirement account could be used to purchase an annuity that would provide a lifetime of monthly payments. Though there is no obvious answer as to whether or not a retiree should convert a lump sum amount into a financial vehicle that provides monthly payments, it is important for people to make careful retirement planning decisions. This is especially true considering the fact that many people will be retired for a long period of time.