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Include Longevity Planning in Your Retirement Strategy

Average life expectancy for men and women in the U.S. has reached the mid-80s and the Social Security Administration estimates that one in four 65-year-olds will live into their 90s. Living longer means having more time to do the things you enjoy in retirement but there's something else to think about -- how you make your savings stretch.

"As people are living longer than ever before, it's essential that they plan on their money lasting longer as well," says Dan White, a chartered financial consultant and founder of Daniel A. White & Associates in Glen Mills, Pennsylvania.

As your time horizon for retirement increases, it may be necessary to look at your investing strategy through a different lens. Longevity planning offers a solution. Creating your longevity plan begin with assessing your current financial situation and your future retirement needs.

Check your income streams. One of the keys to longevity planning is having varied sources of income in retirement and the more options you have, the better says Eric Hutchison, a managing partner with United Capital in Little Rock, Arkansas.

"Having multiple sources of income is often the norm for many retirees," Hutchison says, with many seniors drawing income from Social Security, 401(k)s, individual retirement accounts (IRAs), taxable investment accounts and traditional savings accounts.

"All these income sources can work together to provide the positive cash flow needed to meet living expenses in retirement," Hutchison says. Beyond ensuring that you're able to meet cover your expenses, multiple income sources can also be beneficial from a tax standpoint.

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"If people have qualified money, non-qualified money and tax-free Roth money, they can integrate tax-efficient withdrawals, which would reduce their taxes and make their money last longer," White says.

Joseph Roseman, managing partner of O'Dell, Winkfield, Roseman & Shipp in Charlotte, North Carolina, says longevity-minded savers should start by identifying existing sources of guaranteed income.

"Most likely, the first two are Social Security and pensions," Roseman says. From there, investors should look for opportunities to create additional income avenues.

"You can turn most assets into an income stream but if you turn a portion into a guaranteed lifetime income stream it allows you to be flexible with the remainder of your assets," Roseman says. Once you have reliable income in place, you can be ultra-aggressive or ultra-conservative with your other investments.

Ken Nuss, CEO of AnnuityAdvantage, points to annuities as a means of stabilizing your income base in the face of increasing life expectancies.

"Annuity contracts are the only financial instrument which can guarantee lifetime income, no matter how long you live," Nuss says.

Deferred income annuities allow you to make an investment today with guaranteed lifetime income starting at a later date. Nuss says that depending on the length of the deferral period, these types of annuities may pay out more income than other investment options.

A reverse mortgage is another path for creating income in retirement but pre-retirees should consider them carefully, says Lisa Hutter, senior director of Wells Fargo Private Bank in Austin, Texas.

"Reverse mortgages are beneficial in terms of the income stream they can provide but before applying for one, you should read the fine print and compare your options," Hutter says.

Hutter says that reverse mortgages can have higher up front closing costs than a traditional home equity loan, as well as higher fees. While reverse mortgages don't require monthly payments, the amount that must be repaid grows as interest accumulates.

Decide if working longer is an option. If you're not able to diversify your income streams beyond Social Security or an employer's plan, staying on the job past your normal retirement age may be an alternative to consider.

"Working longer allows pre-retirees to continue growing their retirement accounts, while deferring Social Security to obtain maximum benefits," White says.

That can be helpful if Social Security features heavily in your long-term retirement income strategy, says Fred Creutzer, owner of Baltimore-based Creutzer Financial Services.

"I strongly suggest leaving Social Security benefits alone as long as you can, and use your 401(k) plan to cover expenses while your future Social Security benefits grow," Creutzer says.

If working full-time isn't feasible, putting in reduced hours can allow you to bridge the income gap and potentially make the eventual transition to retirement down the line easier, says Scott Mann, president of Mann Financial Group in Houston.

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"If an investor finds themselves in a situation where they need to delay Social Security and compensate for putting it off, a part-time job could be a great option," Mann says.

Cover your insurance bases. Life insurance and long-term care insurance are integral parts of longevity planning for pre-retirees.

"Long-term care and life insurance should certainly be a consideration if longevity is in the cards," White says. "The longer one lives, the more likely they'll require care at some point, which will be expensive."

Medicare can help to shoulder the burden of things like doctor visits or ongoing treatment for health conditions but it doesn't extend to long-term care. Medicaid will pay for long-term care but seniors are forced to spend down their assets to qualify.

Hutter says that if you're considering life insurance or long-term care insurance, the time to buy is sooner rather than later.

"Long-term care insurance, like life insurance, is generally less expensive the younger and healthier someone is," Hutter says. "The optimal time to obtain long-term care insurance is before serious health issues arise."

Long-term care insurance can allow you to leave a legacy of wealth for future generations if you're not having to use your assets for health care during your lifetime. Life insurance ensures that your spouse is able to meet their immediate financial needs should you pass away first.

[See: 6 Strategies To Avoid Working in Retirement.]

Lacey Manning of LTG Financial in Ocala, Florida, says life insurance can also be an important source of income for retirees.

"Life insurance is one of the few tax-free income opportunities you'll have in retirement," Manning says, likening it to the "Swiss army knife" of retirement planning.

"Life insurance can be drawn out at any age without restrictions, unlike Social Security, a reverse mortgage or an annuity," Manning says, allowing retirees to supplement their income in their early retirement years while deferring other benefits until they absolutely need them.

Manning says that beyond insurance, investors need to keep their spending in mind when tackling longevity planning.

"I like to have my clients visualize their retirement during the planning process," Manning says. "Creating a budget for expenses and guaranteed income will help create a realistic picture of whether they may outlive their money.

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