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How Americans Are Planning for Their Biggest Financial Challenge — Living Too Long

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Living longer could be hazardous for your financial health. According to Merrill Lynch’s latest Affluent Insights Survey - which polled 1,000 American adults with investable assets of $250,000 and above - more Americans are facing serious long-range retirement challenges. Data from the Society of Actuaries found that a 65-year-old couple now has a 31 percent chance of at least one spouse living past the age of 95, and by 2050, the U.S. population will include over 600,000 centenarians.

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Problem is, most people aren’t prepared yet financially to ride out those extra years in their desired level of comfort. At the same time, they don’t want to give up their current lifestyle in order to retire. So they’re sorting through a raft of choices and decisions that will help them find a happy medium. Here are some noteworthy takeaways from the survey:

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Top concerns of affluent Americans

  1. Rising health care costs
  2. Nation’s budget deficit
  3. U.S. unemployment rate
  4. Potential for rising tax rates
  5. Nation’s political standing with the world

Not willing to make retirement tradeoffs

Fifty-one percent of individuals surveyed said they would rather retire later than make tradeoffs — though if they had to, 38 percent would trim day-to-day expenses, 35 percent would purchase fewer personal luxuries, 32 percent would limit vacation budgets, 27 percent would keeping the same car longer, 25 percent would leave less of an inheritance, and 24 percent would downsize their home.

Some will work well into their 80s

While 58% of affluent Americans would like to live to 100, 75% would approach their money management differently if they knew they were going to live that long. For example, 39% would continue to work at least part-time during retirement, 37% would work with their financial advisor to reevaluate their savings and investment strategies, 32% would invest in a lifetime income product, such as an annuity, 32% would contribute more to a 401(k), IRA or other retirement savings vehicle, 29% would purchase long-term care insurance, and 25% would retire closer to age 85 than 65.

Age 65 has little bearing on planning

Only 14% of those surveyed that are over the age of 50 think of age as a factor that would most lead them to retire. In fact, what would more likely lead them to retire would be feeling confident that their assets will allow them to live the lifestyle they want and a possible health condition-either their own or that of a family member.

Getting serious about making assets last

For those ready to retire in the next five years, many are concerned about their assets lasting throughout their lifetime. Of those surveyed, 39% are saving more, 36% are developing a plan for monthly expenses and other financial needs once retired, 20% are consolidating assets with fewer financial institutions, 19% are clipping more coupons and 15% are providing less financial support to their adult-age children.

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Health care costs remain a top concern

Even among the affluent, health care costs are the biggest financial concern. One-third of respondents even said they are more concerned about the financial implications of a chronic illness or disability than they are about its impact on their quality of life. Yet 62% of respondents over the age of 50 have not yet estimated what their health care costs may be during retirement.

Women worry more

Additionally, women are more worried about their retirement assets lasting throughout their lifetime. And for good reason. Women, on average, live more than five years longer than men and tend to have less money stowed away in retirement accounts. They are also more likely to care for an aging parent, which can quickly eat away at retirement income.

They want more guidance

Those surveyed said they’d like to discuss retirement much more with their financial advisor. Thirty percent would like to talk about how to financially plan for the possibility of living to be 100 years old, 29% would like to discuss managing cash flow and liquidity in retirement, 26% would like to discuss balancing competing near- and long-term financial demands, 25% would like to discuss how they hope to live their life during their retirement years, 25% would like to discuss high health care costs and how it impacts their retirement income, and 21% would like to discuss making lifestyle choices today that will improve their long-term financial security.

Image: Ed Yourdon, via Flickr

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