Recently, I’ve been thinking about my death. When reviewing my social security statement, they predict my wife and I will live to 88 and 86. Meanwhile, an insurance company’s actuary predicts my wife and I will live to 97 and 95. In the future, we will find out which calculator was most accurate, but we’re not in any rush.
The Age Factor
Assuming different ages for life expectancy can make a major difference in retirement strategies. Age is also a factor as to when social security payments can start. You can start social security as early as 62, but most people wait to receive a larger payment by deferring to their later years (66-70 years old). But those in poor health with shorter life expectancies should consider starting their payments earlier.
Another piece to remember is: the longer you live, the longer you’re expected to live. Currently, I am expected to live to 82, but if I make it to 62, that number goes up to 85. If you’re married, your life projection is even longer. Other factors matter too; income, education, and family history each play a significant role in life projection.
Should you save enough to live to 100? Well, that’s a long conversation. The short lesson is to look at your health, family history and true long-term income needs in order to properly assess your life projection. If you’re a healthy, fit college graduate with a higher-than-average income, living to 100 may be possible. If you smoke, are overweight, have high blood pressure or low blood sugar, you’re much less likely.
Most planners, like myself, use age 90 or 95 as default life expectancies. We understand that few of our clients are likely to reach that age, but we prefer to err on the cautious side.
Projecting Longevity
When it comes to your retirement age, it is important to come up with a ‘Plan B’. If income is projected to run out in your mid 80’s, you should talk with your advisor about reducing spending in the future. Even so, tapping into your home equity may be suggested by your advisor to address financial longevity. Remember, there are risks if you fail to make your loan payments. Risks of home equity loans include extra fees, a lowered credit score and even the chance of foreclosure.
One of the ways to plan for retirement is to create a personalized estimate using a life expectancy calculator then add a few years to create a cushion. I suggest a personalized calculator that factors in gender, smoking, income, and health.
No one can know for sure when retirement will end, only that it will. Making the best estimate of your longevity will help your financial advisor know how much to save and spend in the meantime.
February 2021
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss.
