Can Americans Afford To Live Longer? Here’s the Math

There are more Americans turning 65 this year than at any time in history. The good news is they are reaching retirement and will have, on average, another 20 years to live. The bad news is they are reaching retirement and will have, on average, another 20 years to pay for their increasingly expensive health care and other costs of living that grow at variable compound rates that average around 2%. If you are ready for this, consider yourself among the lucky ones.

A recent article in The Wall Street Journal declared the current cohort of Americans ages 65 to 74 are wealthier than their peers at any other time in history based on the median household net worth in 2022, which was roughly $410,000. But a key difference between net worth and income is the fact that income is liquid while there are many hidden layers in net worth. A large portion of the increase in the median household net worth has been driven by the astronomical rise in home prices. Although home values allow owners to take out loans against their equity, real estate is among the least liquid assets. Owning an expensive home is great, but one cannot pay for food or hospital bills with their home unless they take a loan against their equity or sell the home, in which case they will have to buy another home at the current market price or rent.

For an average retiree, income may be a more reliable measure of how comfortable they live. In 2022, the median household income for those ages 65 and older was $50,290 while the average annual expenditures for this age group totaled $57,818. At least half of this age group had income measured in 2022 dollars that was below average expenditures for the cohort. Of course, their net worth can also provide cushion to some extent. However, with longer average life expectancy, American retirees are set to spend more years in retirement. Will $410,000 last them for 20 years? The Journal already caused an uproar with an article telling Americans to skip breakfast to save money. How long before retirees are told to live shorter if they want to make their retirement math work?

Senior Expenditures Outpace Income

_{Source: U.S. Census Bureau; U.S. Bureau of Labor Statistics}