One of the Most Important Factors in Retirement Planning Is Something Almost Nobody Wants to Talk About

In some ways, planning for retirement is abstract. You talk about things like dreams, goals, and second chapters. But in other ways, it’s just simple math. You’re going to need X amount of dollars per month over Y number of years.

It’s that second number, the Y variable, we have so much trouble with. It’s not easy to think about how long we’re going to live because it requires us to estimate when we’re going to die.

Yet, knowing your expected longevity is crucial for planning a retirement where your money doesn’t run out.The unfortunate fact is that many people do outlive their money. According to a 2017 study, the number of people whose retirement income nearly all came from Social Security at age 65-69 was about 18%. But by age 80 it nearly doubles to 33%.1

One of the problems with planning for longevity is that people don’t really have a good idea of how long they can expect to live. We like to think of our own lifespans as something known only to Providence. But in fact, actuaries (people who do calculations for life insurance companies) can predict how long you are likely to live with a high degree of accuracy. Given a few facts about your current age, health, and lifestyle habits, they can compare you with millions of others with similar factors.

Just how bad are we at estimating our own longevity? As part of the University of Michigan’s ongoing Health and Retirement Study, a large group of 65-year-olds were asked to estimate their chances of reaching age 75. Respondents gave themselves a 67% chance of reaching that age. Yet ten years later, when the study followed up, 78% of those respondents were still around.

Another aspect of longevity that couples tend to overlook is the likelihood of a wife outliving her husband by a significant amount of time. Currently, men’s life expectancy is about 73 years, while women’s is roughly 79.

However, average life expectancy is not an upper limit. Averages are made of data points both above and below the average. According to MIT professor James Poterba, who has studied longevity and retirement saving, a non-smoking, healthy couple who are both age 65 have a 46% chance that one of them will live to 95.

To help you get a realistic idea of how long you can expect to live, the American Academy of Actuaries has used data from the Social Security Administration to create an online Longevity Illustrator.

Your expected lifespan is a key factor in many of your retirement planning decisions, affecting everything from when to take Social Security to what kind of living arrangements you’ll need to your risk tolerance for investments.

It’s a sensitive subject. And your trusted advisor is happy to talk through various longevity scenarios, discuss your best options, and help you plan accordingly.