Retiring Old Thinking

Likening the retirement hopes of Americans to a slice of Swiss cheese, the EBRI adds that workers are not thinking about health care costs. They also aren't taking into account that our statistically longer lives are very expensive to maintain.

"Life expectancy has changed, and if people live just an extra 10 years, that's an awful lot of retirement that has to be covered through their life savings," says Rob Brown, chief investment strategist at Genworth Financial Asset Management.

Recent EBRI research showed that individuals aged 55 who live to age 90 would need to have accumulated $210,000 by age 65 just to pay for insurance to supplement Medicare and out-of-pocket medical expenses in retirement. This is far more than 90% of all workers have currently saved for all retirement expenses.

Savings, They Are A'Changing

One one hand, the prospect of living longer presents financial problems. If a person retires at 65 and leads an active lifestyle until 95, that's 30 years of food, shelter, travel and health expenses to fund.

However, Brown notes that it is this longer life expectancy that allows investors to have more risk in their portfolios, even as they near retirement age.

"Investors now have the benefits of time and diversification," he says. "Not only is there a need to be a more aggressive investor in order to fund retirement, there is the ability to weather market downturns later in life. If you have a diversified portfolio, there is time to stay in the stock market and wait for [bear markets] to bounce back."

He says that being more aggressive later isn't necessarily breaking the rules. It's a matter of acknowledging that, as people live longer, you can invest like you're 40 when you're 60 if you're going to live to be 100 rather than 80.