Anytime a grizzled mentor in a movie mentions that he’s one day away from collecting his pension, the audience knows he won’t make it to the end credits.
Filmmakers rely on this cliché for a reason: The heartbreaking unfairness resonates with all of us. Nearly everyone can name a family member, colleague, or friend who never got to enjoy their retirement because death came too soon. Dying before you get a chance to enjoy the hard-earned fruits of your labor feels like the worst thing in the world.
But fewer people consider the other side of the coin: What if you live a long life after retirement? There’s no ideal retirement age that fits everyone—but no matter when you plan to retire, you need ask yourself if you’re financially prepared for longevity.
Underestimating your chances of living to 100 may not feel as tragic as dying the day before you retire, but it’s the slow-moving retirement tragedy that you can prevent. Here’s how to make longevity part of your retirement plans.
Imagine yourself at 100
Hal Hershfield, a social psychologist at UCLA, found that when people think about themselves 10, 20, or 30 years in the future, their brains respond as if they are thinking about a stranger. Unfortunately, it’s very difficult to feel concerned about a future self who feels unrelated to you.
That makes it difficult to take the risk of a long, underfunded retirement seriously. That future person isn’t you, so to hell with them. They can deal with the problem when it arises.
This is why many retirement professionals recommend creating an age-progressed image of yourself. The image will help you connect with your future self and motivate you to set more money aside to protect them.
But even if you don’t create a senior selfie to spur your savings, taking the time to think through what your life will look like when you are 70, 80, 90, or 100 can make a big difference. Ask yourself how you will spend your time, solve daily problems, and take care of yourself. This can help you see your future self more concretely, which will encourage you to consider that future self’s needs.
Recognize the forever fallacy
Humans struggle to remember that everything changes. The exhausted parents of a colicky newborn feel certain that they will never again get a good night’s sleep. The professional athlete earning millions of dollars a year spends money as if their annual salary will always have seven figures. The newly retired 63-year-old imagines their good health will remain the same forever.
This inability to foresee inevitable changes is due to a cognitive bias called the “forever fallacy.” Psychologists have theorized that the forever fallacy causes a kind of time distortion in our psyches. We imagine current conditions are permanent and unchanging, which means we’re unable to consider the possibility of different futures.
This cognitive bias is why it’s common for retirees to feel like the life they’re living isn’t the one they planned for. The situation they planned for doesn’t exist anymore, either because of changes to their own lives or health or because of broader economic and social changes.
This kind of surprise can, and does, happen to every retiree. Things will change in ways we don’t expect, and it catches us flat-footed. After all, no one who planned to retire in 2020 thought their first year of retirement would be spent in isolation.
But the forever fallacy also makes us forget about the much more predictable changes that come with longevity, such as the certainty that your health will change as you age. For example, 80% of 65-year-olds will need long-term care—which is not covered by Medicare—at some point during their lives. But according to Fidelity Investments’ annual study on the cost of medical care in retirement, 20% of Americans have never even considered retirement healthcare costs.
It’s impossible to completely avoid the forever fallacy, but you can start training yourself to consider how your circumstances can change.
Stop trying to game Social Security
Until 2008, the Social Security Administration offered calculators to help beneficiaries determine their break-even age—the date when delaying retirement benefits would result in the same total amount of money received as taking them early.
The break-even analysis looks at the total amount of money you have received over time. Beneficiaries may take their Social Security retirement benefits as early as age 62, but those benefits are permanently reduced by up to 30%. Delaying benefits increases your monthly check by approximately 8% per year, up until age 70, when you can receive up to 124% of your expected benefit.
For most beneficiaries, taking benefits at age 62 will result in more cumulative benefits up until about age 79. A number of people tout this as a reason to take early benefits. Receiving more cumulative money from Social Security for 17 years can seem like a no-brainer, especially if you’re concerned about the program’s future.
But this framing of Social Security benefits puts you in a terrible position: Specifically, the only way to win this “game” is to die young.
Your Social Security benefits will keep coming no matter how many birthdays you enjoy. They offer you insurance against unanticipated longevity. Trying to get the most money out of these benefits is looking at this program the wrong way—and cheating yourself. Reaching your 80s or 90s with a permanently reduced benefit means you are giving yourself a tougher financial situation without the option of returning to work.
Instead of focusing on the fear that you won’t get your fair share of Social Security benefits if you die young, imagine that you’ll live a long time. That can help you make the best decisions for your vulnerable future self.
Live long and prosper
Although we are more inclined to think, worry, and plan for the possibility of dying young, we should spend more time considering the risk of longevity. That’s because your death is what happens to your loved ones, while longevity is what happens to you.
Our brains don’t make it easy to think about the potential problems of a long life. When we picture our future selves, we think of them as a stranger. We struggle to recognize that our current situation isn’t forever and that change is inevitable. We want our fair share of financial benefits without considering the consequences.
Rather than focus on the potential heartbreak of dying too early to enjoy your retirement, start planning for a 100-year lifespan instead. Assuming you’ll live a long life is the best way to protect yourself from a preventable retirement tragedy.
