Figuring How Long You’ll Live

How long do you think you will live? How long does your money need to last? If you’re like most people, you get this age wrong.

The consequence? Faulty retirement planning, overspending now and running out of money before you actually reach your true longevity. Or spending too little now, depriving yourself of a comfortable retirement before your death.

Tough call. Your longevity is the statistically expected number of years of life you have remaining at a given age – specifically, your current age. (Your longevity depends on other  factors; find one calculator with good insights into these factors on the UPenn Wharton website and find others by Googling “life expectancy calculator.”)

Two well-known tables for life expectancy are the Social Security general population table and the 2000 Annuity Table. The tables constantly change with shifting demographics, lifestyles, medicines and other advances. Today’s tables may, therefore, understate longevity, especially for younger people.

Let’s look at a couple of tables to get a general sense of longevity. This chart, from the 2007 version of the Social Security table, gives you a point of reference when thinking about how much longer your money needs to last.

Soc Sec ages table

The figures above show the number of years and expected age for a female at both expected age (50% outlive that age) and a healthier female (30% outlive that age). At 65, if you’re a woman you can expect to live to age 86, depending on your lifestyle and health.

Yet at 85 you may have seven or more years remaining – illustrating the importance of understanding given or present age when you plan retirement spending.

Annuity Soc Sec Comparison

The chart above compares the Annuity table to the Social Security table. Notice that the “healthier” population subset enjoys a greater number of remaining expected years compared with Social Security’s general population. Also notice that the corresponding percentage of the Social Security subset that outlives the stated number of years is less than the expected longevity of the healthier population.

In other words, about 40% of the general population may outlive members of the ”healthier” population due to lifestyle choices, lack of accidents and other similar factors (including just plain luck).

Some advisors suggest planning to age 95. I suggested that, too, until I looked at these kinds of tables during annual client reviews. Such advice can reduce how much you spend today just in case you live to 95.

I now suggest adjusting spending over time. Instead of guessing an age you think too old to imagine, anchor your expectations on how long your money needs to last using statistics for your population group. Update that expectation each year during your annual financial review.

Rather than fear outliving your money, embrace uncertainty through a structured process that incorporates uncertainty into your financial decisions. Life is full of uncertainty and forks in the road. You can prudently manage your retirement money surer than that.

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Larry R. Frank Sr., CFP, is a Registered Investment Adviser (California) in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has an MBA with a finance concentration and B.S. cum laude in physics with which he views the world of money dynamically. He has peer-reviewed research published in the Journal of Financial Planning. http://blog.betterfinancialeducation.com/.

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