Is your retirement plan ready for the longevity revolution?

Sometimes a whole crate of birthday candles might not be enough.

Americans are living longer than ever, with the average life expectancy now rising to about 79 years. Some have referred to this trend as the “longevity revolution,” but it’s also creating a revolution in the way people think about retirement.

What worked for retirees a generation ago isn’t going to work today. For most people, pensions are no more. Social Security has an uncertain future. And individual savings aren’t where they need to be for far too many people.

That uncertainty means people need to consider a number of factors to improve the odds of a joyful retirement.

First, the tax implications involved. As people save for retirement, they often make plans based on the total amount in their accounts, but neglect to think about what kind of effect taxes will have on their bottom line. Many retirees have money in tax-deferred vehicles, such as a traditional individual retirement account or a 401(k). That means they were able to put off paying income taxes on the money while they were accumulating it, but once they enter retirement and start withdrawing money, it becomes taxable. It’s important when planning for retirement to consider and understand all the tax ramifications.

Prepare for long-term care needs. When it comes to longevity, outliving retirement money isn’t the only concern. There’s also a greater chance that, as the decades pass, their health will decline and they’ll be in need of some sort of long-term care, which can be expensive. It’s worthwhile to consider planning for that possibility. There are options for coming up with a long-term care strategy, but retirees will want to make decisions based on their particular needs and circumstances.

Lastly, consider possible market risks and personal tolerance. In general, the longer an investment sits, the more potential the money has to grow, but not everyone has the same risk tolerance. An aggressive-investing approach that could pay off more in the long run can make some people nervous. For those people, there are conservative investment options that can still provide the potential for wealth accumulation. One possibility is an annuity, which is an insurance product that pays the person a monthly amount for the rest of their lives, much like a pension. Once in retirement, a retiree doesn’t want to endure a big loss in the market that they won’t have time to bounce back from.

With a real possibility that retirement could last three decades or longer, retirees need to put themselves in the best financial position possible. Anyone who doesn’t have a solid retirement plan and is just leaving things to chance could be making a very costly mistake.

Jack Teboda, president and founder of Teboda & Associates, http://www.teboda.com, has more than 35 years’ experience helping people pursue financial independence through personalized investment strategies. Teboda earned a bachelor’s degree from Iowa State University and a master’s degree from Northern Illinois University.