While rising life expectancies “are undeniably positive, they also mean that more people will face late-life financial risks for which they may be unprepared,” the Center for Retirement Research has said in a report.
“The situation is generally expected to become more challenging, because future retirees will be more reliant on often-modest 401(k)/IRA lump sums rather than the automatic lifelong payment stream of a traditional pension plan. At the same time, a rising full retirement age means monthly Social Security checks will provide less relative to pre-retirement income at any given claiming age. In short, future retirees will likely have less reliable income as they reach advanced ages,” it said.
Due to demographics and increased longevity, the population of Americans age 75 and older is projected to more than double over the next 20 years to 45 million. That means more people will have to live longer on their retirement savings and other income, while at more advanced ages risks of mental decline increase, it said. That in turn will make it more difficult to manage those savings, raising the chances of financial mistakes and susceptibility to fraud.
“The basic issue is that financial skill tends to deteriorate for many in their 70s. At first, minor things start occurring, like forgetting to pay certain bills. However, when severe decline such as dementia sets in, the vast majority of people lose the ability to manage their finances at all,” it said.
It added that with advancing age two other risks also grow: more health problems that in turn increase out of pocket spending for medical care; and the increasing likelihood of the death of a spouse, often resulting in a decrease in ongoing retirement income from Social Security or annuity benefits.