May 4, 2011

The Problem With Living Too Long

Employee Benefits and Executive Compensation Bulletin

People are living longer. Undoubtedly, most of us would consider this a good thing, but from one perspective, it’s not, as it makes it much harder to save enough money to generate sufficient income in retirement. Under the defined benefit pension plans that benefitted our parents, longevity wasn’t an issue for retirees; they had a monthly income for life. But in the current 401(k) environment, most employees retire, receive lump sum distributions, roll them over to IRAs, and then have to stretch the money out over the rest of their lives. To do that, retirees need to know the time over which the money must stretch; that is, how long will they live after they retire? But, of course, no one knows the answer to that question.

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