Navigating Retirement Planning: Understanding Your Life Expectancy
Title: Planning for Retirement: How Long Will You Live?
Effective retirement planning largely depends on the answer to one question: How long will I live? Yet no one truly knows the answer to that question. Here’s what experts say you should consider to best gauge your plans.
To effectively plan for your retirement, experts say, you need to watch your savings rate and total nest egg. But how much you really need to have set aside depends on another number — your life expectancy.
Yet that figure is also the most elusive — no one knows how long they will live.
“Nobody really knows, and that uncertainty is uncomfortable,” said Lisa Schilling, director of practice research at the Society of Actuaries Research Institute, the research arm of the Society of Actuaries.
The financial industry typically uses age 95 as a default assumption, according to research from HealthView Services, a provider of health-care cost projection software.
Instead of planning for one life expectancy number, the Society of Actuaries and American Academy of Actuaries emphasize longevity.
Longevity risk measures the likelihood someone may live longer than expected and outlive their savings.
The Society of Actuaries and American Academy of Actuaries recently relaunched a free online longevity illustrator.
The tool asks for basic information on either an individual or a couple: age, sex, retirement age, smoking status, and a description of their general health — poor, average, or excellent.
The results aim to provide a “reasonable” estimate of how long you might live, according to the organizations. The illustrations show the probability of living to certain ages, as well as the number of years of life one might live in retirement.
Generally, the higher your current age, the greater the possibility you may live longer. While life expectancy at birth may be 84, it will be even longer if you’ve already made it to age 65, Schilling said.
Chronic health conditions such as high blood pressure, cardiovascular disease, cancer, diabetes, high cholesterol, tobacco use, obesity, or Parkinson’s disease reduce an individual’s projected life expectancy.
Most experts advise individuals to plan for outliving their assets by delaying Social Security retirement benefits or considering an annuity to amplify monthly income.
Considering an individual’s specific health status and how that affects their life expectancy can help personalize financial plans, according to Ron Mastrogiovanni, CEO of HealthView Services.
“That doesn’t necessarily require eliminating age 95 assumptions altogether,” he said. “But letting someone know their personal life expectancy can help provide a more reasonable sense of an age to plan to.”
In conclusion, effective retirement planning requires considering your life expectancy and how it may be affected by various factors. Personalized financial plans can help individuals better prepare for their retirement years.