One of the most difficult aspects of retirement planning is that you don’t know how long you will live and therefore how many years of retirement you need to save up for. Most people plan for retirement using an estimate of their life expectancy. However, if you guess too young an age, you risk spending down your savings too quickly and coming to rely completely on your Social Security income. If you pass away earlier than expected, you will leave money you could have spent to heirs. Here are some strategies for estimating how long you will live.
Check out the averages. The Social Security Administration maintains a life expectancy calculator that will tell you the average number of additional years a person with your date of birth and gender can expect to live. Using this calculator, a 65-year-old women born on January 1, 1951, has a life expectancy of 86.7 years. And if she makes it to age 70, her life expectancy increases to 87.8 years. A man the same age has an average life expectancy of 84.4 years.
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“The SSA has the best information and the most sophisticated prediction methods for figuring out average future life expectancies in the U.S., so we can be pretty certain these are the most accurate and sophisticated estimates for an average American, no matter the person’s current age or gender,” says Gary Burtless, a senior fellow for economic studies at the Brookings Institution. “However, we also know that an individual’s life expectancy is heavily influenced by other factors, such as marital status, ethnicity, smoker, drinker and the actual life spans and reasons for death of the person’s parents.” The SSA calculator does not take into account your current health, lifestyle or family history.
Factor in health. Obviously, your health and the conditions that run in your family play a significant role in how long you will live. “Whenever I meet with a client I will get a health history from them,” says David Stull, a certified financial planner for Storehouse Financial in Fort Worth, Texas. “You can get a kind of hereditary expectation from the parents. What kind of health did your mom and dad have and how long did they live?”
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There are also behavioral factors within your control that impact your life expectancy. “Our main guidance would be for people to spend more time focusing on improving their life spans,” says William Heisel, director of global engagement at The Institute for Health Metrics and Evaluation at the University of Washington. “This means, among other things, paying more attention to their diets to make sure they are getting enough fruits, nuts, seeds and omega-3 fatty acids, avoiding too much salt, saturated fat, sugar and processed meats, quitting smoking and avoiding areas where people smoke, moderating their drinking habits and taking time to be physically active.” Engaging in healthy behaviors might help you live longer, but you also need to find a way to pay for those additional years of retirement.
Plan for a long life. Of course, the average life expectancy doesn’t necessarily tell you how long you will live or protect you from living longer than you expect to. “The problem with the average is some people will live longer than that, and you want to be 100 percent sure that you are not going to outlive your money,” says Cindy Levering, a retired pension actuary in Baltimore and member of the Society of Actuaries committee on post retirement needs and risks.
There are a couple of different ways to prevent running out of money if you live until age 100. Social Security payments are guaranteed to last for the rest of your life. Taking steps to maximize your Social Security benefit in your 60s could allow you to have a significantly higher payment coming in during your 90s. Some types of insurance projects, such as immediate annuities, also provide guaranteed payments for as long as you live, if you’re willing to hand over a chunk of cash upfront and pay some fees. Some people also have the discipline to gradually draw down their savings over several decades.
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Many financial planners recommend that healthy clients plan as if they will live into their 90s or even to age 100. “We generally have used a target life expectancy of 95 years for financial projection purposes,” says Jennifer Morrell, a certified financial planner for Nevils Financial in Wakefield, Massachusetts. “Nothing would be worse than to have a client live longer than expected and have spent their entire nest egg. They would be forced to live their remaining years in poverty.”
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How to Estimate Your Life Expectancy originally appeared on usnews.com
