When planning for retirement, understanding your potential lifespan is crucial. What if you knew you would live to be 100? While predicting the future is impossible, there are tools available that can help you estimate your life expectancy, which in turn can assist you in avoiding financial difficulties during retirement.
Advancements in genetics and science are contributing to longer lifespans. In fact, triple-digit lifespans could become increasingly common in the future. The number of centenarians has been steadily rising, as evidenced by the New England Centenarian Study conducted by Boston University. As of 2021, the study reported that 0.27% of the U.S. population was 100 or older, double the prevalence from two decades ago.
Even if reaching 100 seems unlikely, understanding longevity and calculating your life expectancy is essential for effective retirement planning.
Why Life Expectancy Matters
Knowing your life expectancy allows you to estimate how much money you should save for retirement more accurately. The financial requirements for a 10-year retirement differ significantly from those for a 30-year retirement.
However, the impact of life expectancy goes beyond financial savings. It also influences decisions related to Social Security, investment choices, and withdrawal strategies. For couples, planning becomes more complex as they need to account for two lifespans and ensure sufficient resources are available for both partners throughout their retirement.
Related article: Shocking Truth: The Hidden Dangers of Claiming Social Security at 70
Determining Your Life Expectancy
While there is no way to be 100% certain about your life expectancy, there are methods to make an educated estimate. One common approach is to use actuarial life tables, which utilize statistical data to estimate mortality rates.
Here are two tools you can try:
- Social Security Life Expectancy Calculator: This calculator uses Social Security actuarial tables to estimate your lifespan based on your current age. Provide your sex and birthdate to see the average additional lifespan you can expect. It’s important to note that this calculator does not consider factors such as your health or lifestyle.
- Actuaries Longevity Illustrator: Developed by the American Academy of Actuaries and the Society of Actuaries, this tool provides longevity probabilities for individuals and couples. It requires gender, date of birth, expected retirement age, smoker status, and general health status. The calculator assumes you will reach your expected retirement age and provides the probability of living up to age 100. You can print the results and share them with your financial planner.
These tools can serve as a wake-up call, prompting individuals to reevaluate their retirement choices based on their estimated life expectancies.
Avoiding Common Mistakes
One common mistake when calculating life expectancy is underestimating how long you will live. Relying solely on average life expectancies can be misleading since these figures do not account for individual factors such as health and family history.
For example, in 2021, the average life expectancy at birth was 79.1. According to CDC statistics, women have a life expectancy of 81.2 years, and men have a life expectancy of 73.2 years. However, if a healthy man reaches the age of 70 this year, the Social Security actuarial tables indicate he could live an average of 15.4 more years. This estimate exceeds the CDC figures by more than a decade.
Therefore, estimating your longevity based on individual factors is crucial rather than relying solely on general averages.
Managing Longevity Risk
Managing longevity risk, the risk of outliving your financial resources, is vital to retirement planning. This involves more than simply saving extra money in a retirement account.
Evan Potash, a wealth management advisor with TIAA, suggests reframing retirement planning to focus on securing lifetime income sources. Social Security is a primary example of a steady income stream that lasts regardless of how long you live. Traditional pensions, although less common nowadays, also provide guaranteed income in retirement.
Alternatively, you may consider purchasing an annuity, which offers your heirs lifetime and potential benefits. Protecting yourself and your beneficiaries should be a priority. Consider permanent life insurance or fixed annuities as foundational products since they are insulated from market downturns, unlike 401(k) plans and IRAs.
Regardless of the specific financial products and accounts you choose, it is always wise to plan for a longer life rather than a shorter one. Having extra funds when you pass away is preferable to running short and having to make drastic lifestyle adjustments during your final years.