You have probably heard it before, Americans are living longer than any previous generation — a lot longer.
The average life expectancy for a 65-year-old American is 17.7 years for a male and 20.3 years for a female. That means that — according to the Social Security Administration — the average 65 year old man will live until almost 83 and the average woman will live until over 85. But at least half of us will live even longer — a lot longer.
And there is a twist, the longer we live, the longer we will live. A longer life begets an even longer life. While, a 65-year-old American man can expect to live to almost 83, an 85 year old man can expect to live past 90 — on average.
And further good news is that we are living healthier and more robust lives. “Old” people now feel younger and more vital. We are doing more at older ages.
What Do Longer and Healthier Lives Mean for Retirement Planning?
There is no way around the fact that longer and healthier lives cost more money.
Let’s say your household needs $60,000 a year to live on and your Social Security income amounts to $36,000. In this scenario, you would need an additional $24,000 a year in savings to make ends meet for every extra year you live.
How long you live represents an immense factor in planning for your retirement. How much you need for retirement is hugely impacted by how long you will live. If you retire at 65 and only live till 68, you will need only a small fraction of what you will need if you were to live till 98.
How Do You Plan for Retirement When You Don’t Know How Long You Will Live?
Retirement planning can feel futile when one of the biggest factors — your longevity — is completely unknowable.
Here are a few strategies for creating a plan that feels rational:
1) Understand how longevity is projected in your retirement plan: The numbers quoted above come from the “Life Tables for the United States Social Security Area 1900-2100.” A life table is a way of showing the probabilities of someone living or dying at a particular age. The tables are considered to be quite accurate and are created using a great deal of data and some complicated formulas.
However, it is important to repeat that the life expectancies shown above are averages — the average may apply to you or it may not.
Even though they are only averages, and not personal to you, many retirement advisors and retirement calculators base their calculations for how much you need to save for retirement on life tables. Others add additional years to the average life expectancy. Some calculators and advisors enable you to set or change your own life expectancy.
No method is bad or good, but it is important for you to understand how things are being calculated and then make adjustments for your own peace of mind.
2) Consider optimistic and pessimistic plans: You may want to create different retirement plans based on an optimistic life expectancy and a pessimistic life expectancy. For example, you might have a solid financial plan that takes you from age 65 until you are 80 years old. And your back up plan might be to use home equity or some other source of wealth thereafter.
It is also important to assess and refine those plans every year as your finances and health change. Retirement planning is not something you do once and forget, it should be a part of a monthly routine.
3) Consider retirement income instead of living off savings: Most people approaching retirement are focused on figuring out how much savings they need.
However, you might be better off figuring out how much income you need every month and then taking steps to guarantee that income for your lifetime.
The two most popular sources of guaranteed lifetime income for retirement are:
- Social Security: Social Security is income that is guaranteed for life — no matter how long you live. Because it lasts for as long as you do, it may be worth delaying the start of Social Security to maximize your monthly benefit.
- Lifetime Annuities: Lifetime annuities can be another source of guaranteed lifetime income. If you can afford a lifetime annuity, they can enable you to stop worrying about running out of money before you die.
4) Consider longevity calculators: Longevity calculators use data to help assess how long you yourself are going to live. These calculators offer no guarantees of accuracy, but they might help you come up with a life expectancy perhaps more realistic for you.
Some of the best longevity calculators include:
- Livingto100: This calculator is based on data from the New England Centenarian Study, the largest study in the world of people who live to 100. Living to100 asks you almost 50 questions to determine how long you might live. The particularly nice thing about this calculator is that it gives you personalized feedback on each data point about why it is important to your longevity.
- Vitality Compass: The Vitality Compass is the life expectancy calculator from Blue Zones. Blue Zones is a publisher dedicated to uncovering the best strategies for longevity based on places in the world where higher percentages of people enjoy longer lives.
- How Long Will I live?: The University of Pennsylvania has a simple longevity calculator that is often quoted by the press. It is a one page list of about 40 questions that can be answered fairly quickly.
- Medical Life Expectancy Calculators: The calculators found here are designed primarily for medical professionals and usually used to determine life expectancy for someone who has a specific medical condition.
While all of the above calculators are based on real data, it is important to state again that these calculators are not 100 percent accurate.
Your Life Expectancy and Your Retirement Plan
This article gives you a variety of options for dealing with your life expectancy. No matter how you choose to plan, a good retirement calculator can help you make better choices.
The NewRetirement Retirement Calculator uses your life expectancy at 65 plus 10 years as the default setting, but you can also customize your life expectancy and explore the impact of different financial strategies in order to find the right retirement plan for you.
This is a guest post from NewRetirement, which provides free automated online retirement planning tools.
Ovid is the premier life settlement broker. We work with consumers to help you sell your life insurance. Getting an offer for your policy is completely free. If you do want so sell your policy, Ovid operates an industry auction that gets you the highest market price for your policy. We’ve been featured in Forbes, US News, Business Insider and many more for the incredible work we do for consumers. You can learn more about Ovid here.
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