Repeated surveys consistently reveal that the predominant concern among retirees and those nearing retirement is the fear of outliving their financial resources. Although many respondents believe that inflation and rising living costs are the likely culprits, the most significant risk to everyone’s retirement is underestimating one’s longevity.
Understanding Longevity Risk
The Social Security Administration reports that upon reaching age 60, men typically have an additional 22 years of life expectancy, while women have an additional 25 years. Despite this, a recent survey indicates that over 50% of American adults are unaware of typical retirement lifespans. Consider this: if your retirement plan assumes you will live only until age 80, will you have sufficient income to cover your expenses if you live until 85 or beyond?
“By delaying filing for Social Security until age 70, you can increase your benefit by approximately 124%.”
The Longevity Gap Between Men and Women
The disparity in life expectancy between men and women can lead to significant financial loss for a woman who outlives her spouse, particularly if her spouse is a federal retiree who has underestimated their own longevity. The surviving spouse of a federal worker is entitled to only 25% to 50% of the worker’s annuity, depending on the elected survivor benefit at retirement. Regarding Social Security, a surviving spouse cannot receive both their own and their deceased spouse’s benefits. Although the survivor will receive the higher of the two Social Security benefits, one check is permanently lost.
Strategies to Mitigate Longevity Risk
Ensuring sources of guaranteed lifetime income can mitigate the risk of outliving your assets. As a federal retiree, you can rely on your FERS annuity (pension) and Social Security income for life. However, there are additional strategies to adjust your retirement plan and reduce longevity risk.
- FERS 10% Bonus: If you retire at age 62 with at least 20 years of service, you qualify for this bonus.
- Delaying Social Security: By delaying filing for Social Security until age 70, you can increase your benefit by approximately 124%.
- Fixed Indexed Annuity (FIA): Consider using your Thrift Savings Plan (TSP) to purchase an FIA, which offers a guaranteed income stream for life and protects accumulated value against stock market volatility.
To further explore how to safeguard your financial security in retirement against the risk of longevity, connect with an FRC® trained advisor.
