Daily Press (Sunday)

The upsides to thinking about when you will die How life expectanci­es can differ How financial planners estimate life expectancy

- NERDWALLET By Liz Weston Weston is a columnist at NerdWallet and a certified financial planner. Email: lweston@nerdwallet.com. Twitter: @lizweston.

Social Security’s life expectancy calculator predicts I’ll live to about 86. An insurance company’s version says I should expect to die at 98. A longevity calculator created by actuaries demurs, putting the odds at only 32% that I’ll make it to 95.

Eventually, I’ll find out which life expectancy calculator was most accurate. In the meantime, the different results help illustrate one of the most important and difficult calculatio­ns in retirement planning: Figuring out when it will end.

People who underestim­ate their life expectancy could save too little for retirement and run short of cash. People who overestima­te how long they’ll live might stay in the workforce longer than they want to or spend less in retirement than they could.

Why life expectancy matters

Assumption­s about life expectancy can make a dramatic difference in retirement strategies. For example, people who expect their retirement to last 20 years could withdraw 4.7% of their nest egg the first year and have a 90% chance their money would last, according to calculatio­ns by David Blanchett, head of retirement research at Morningsta­r, an investment research firm. To have a similar success rate with a 30-year retirement, the initial withdrawal would have to drop to 3%.

Given those assumption­s, someone who wanted to withdraw $25,000 the first year from their retirement funds would need to save about $532,000 to fund a 20-year retirement.

Life expectancy also can be a factor in when people should start Social Security, which can start as early as 62 years old.

But most people live long enough that the larger checks they can get from delaying their applicatio­ns at least until full retirement age. Those in poor health with shorter life expectanci­es may want to start getting their checks earlier.

At birth, the average U.S. male has a life expectancy of about 76 years and the average female 81 years, according to the Social Security Administra­tion. If you make it to 65, though, the average man can expect to live to nearly 83 and an average woman to 85.

Also, married couples need to plan for longer life spans. There’s a 50% chance that at least one member of a married couple, both age 65, will be alive at 92, according to the Society of Actuaries.

Other factors can add or subtract years from someone’s life expectancy. The more income and education you have, the longer you are likely to live. Race, lifestyle, health and family history play significan­t roles, too.

For example, one study found that Black men and women with 16 or more years of education lived on average 4.2 years less than similarly educated whites and 6.1 years less than Hispanics with the same level of education.

Many financial planners, whose clients tend to have higher incomes, use age 90 or 95 as default life expectanci­es, Morningsta­r research has found. Certified financial planner Malcolm Ethridge of Rockville, Maryland, uses age 99. He acknowledg­es that few of his clients are likely to reach that age, but he prefers to err on the conservati­ve side.

We can’t know for sure when retirement will end — only that it will. A reasonable estimate of when helps us know how much to save and spend in the meantime.

Newspapers in English

Newspapers from United States