We all want to live a long, healthy, vibrant life. But doing so comes with the paradoxical challenge of how to pay for it. Aging is a process of gradual physical and mental decline during which we become increasingly frail and unable to care for ourselves. In essence, as we age, we begin to lose our independence and become more reliant on others.
How long do we have to live a vibrant, independent life? How long will we require the help of others? It is almost impossible to know. And how much these phases of life will cost us is just as difficult to calculate or project.
In recent blog posts, I have described this conundrum as “longevity financial risk,” which is the risk of outliving our assets and becoming financially insecure during old age. This risk is a large and growing problem in America as its population undergoes a major demographic shift of older individuals with extended lifespans.
How Long?
As we contemplate a long and healthy life, a natural question arises: how long can we expect to live, and how much of that time will be spent in vibrant independence versus needing support? The numbers offer a starting point for the average 65-year-old American today, but the nuances of aging reveal a more complex picture.
According to the most recent data from the CDC, a 65-year-old in the U.S. can expect to live, on average, another 19.6 years, bringing them to around age 84 or 85. Women tend to outlive men, with a life expectancy of about 20.8 years at 65, compared to 18.3 years for men. But these are just averages—genetics, lifestyle, and access to healthcare can stretch or shrink this timeline significantly. Some will thrive well into their 90s, while others may face challenges sooner.
The phase of independent living—where you’re active, self-sufficient, and pursuing what matters most to you—is often referred to as the “healthspan.” For many, this period extends into their mid-70s or early 80s. Studies suggest that the average 65-year-old can expect about 10-15 years of relatively good health, where they can travel, volunteer, pursue hobbies, or even continue working if they choose. These years are a gift to spend meaningfully: perhaps mentoring younger generations, exploring new passions like painting or gardening, or simply enjoying time with family and friends. What makes these years fulfilling is deeply personal—whether hiking with grandkids or starting a small business, the key is staying engaged in ways that spark joy and purpose.
But aging inevitably brings changes. By the time you are your late 70s or early 80s, many will begin to experience a natural decline in physical or cognitive capacity. This is when dependency often creeps in. The National Institute on Aging notes that about one-third of people over 85 need assistance with daily activities, like bathing, dressing, or managing finances. For some, this dependency phase may last only a few years; for others, it could stretch a decade or more, especially with conditions like dementia, which affects roughly 1 in 9 people over 65 and becomes more common with age.
The transition from being independent to dependency isn’t just a physical shift—it’s financial and emotional too. Help could mean hiring in-home caregivers, moving to an assisted living facility, or relying on family. The duration and intensity of this phase are unpredictable, which is why planning for it feels so daunting. Will you need help for a year or ten? Will it be minimal support or intensive care? These unknowns make longevity financial risk a puzzle we must approach with practicality and hope, ensuring we’re prepared without losing sight of the vibrant years ahead.
How Much?
The financial realities of aging can feel like a wake-up call. As we plan for a long, vibrant life, the costs of maintaining independence and, later, covering dependency can add up quickly. Understanding these expenses is critical to addressing longevity financial risk and ensuring we don’t outlive our assets.
For the independent years—roughly from age 65 to your late 70s or early 80s—the costs are often tied to lifestyle choices and healthcare needs. If you are an active 65-year-old, your expenses will resemble those of your earlier years: housing, food, transportation, and a possible increase in discretionary spending on travel or hobbies. If you aim for a fulfilling healthspan, you will incur the costs for pursuits that keep you engaged, such as travel, classes, or community activities. Over 15 years of independent living, a couple might spend $800,000-$1,200,000, assuming modest inflation and no major health crises.
The dependency phase, when you may need help with daily activities, is where costs can escalate dramatically. Based on Genworth’s 2024 Cost of Care Survey, the national median cost for assisted living is $5,900 per month, or $70,800 annually, with a typical stay of about 22 months totaling roughly $130,000 per person. If you require in-home care, a home health aide averages $34 per hour. For 20 hours a week, that’s $35,360 annually, though costs can soar if round-the-clock care is needed. Nursing homes are even pricier, with a semi-private room costing $120,000 per year and a private room at $140,000. For someone needing care for 3-5 years, these expenses could easily range from $200,000 to $600,000 or more, especially if specialized memory care is required, which can add 20-30% to assisted living costs.
These numbers highlight the stark reality: a couple living past 85 could face $1 million or more in total costs, combining independent living and a few years of care. Without planning—through savings, insurance, or other strategies—the risk of financial insecurity looms large. The key is to start early, assess your health and family history, and build a financial plan that balances today’s joys with tomorrow’s needs.
Financially Preparing for Longevity
Failing to adequately prepare and becoming reliant on government assistance or becoming a financial burden on our children is a scary outcome for aging Americans. Mismanage your spending, and you can deplete your funds too quickly. While underspending during our independent phase of retirement means foregoing opportunities to live a vibrant life. This fear results in retirees spending years worrying about money, curtailing consumption, and failing to engage in life while alive and in good health.
Despite the significance of this issue, individuals have limited financial options and tools to address this challenge. The best financial product currently available to address this challenge is lifetime income annuities offered by insurance companies. Annuities are the best financial product available to offset longevity financial risk. Yet, despite the strong economic benefits annuities can offer during old age, studies show that fewer than 12% of retirees currently opt to purchase annuities.
Why don’t more retirees purchase annuities? Some research suggests this may be due to behavioral biases and a lack of understanding of what an annuity is and how it works. It may also result from the historically poor financial performance of annuities over the decades of low interest rates.
Regardless of the reason, longevity financial risk is one of the most significant challenges facing individuals and governments. We all need to address our longevity financial risk through savings, investments, and controlled spending, to have sufficient resources to meet our needs during retirement and into old age.