Life expectancy: The most important variable in retirement planning

When I write about retirement and retirement planning, I frequently mention that I aim for my savings and investments to last another thirty years. So, for instance, when I use retirement calculators to determine how long my nest egg will last, I use 78 as my projected age of death. Several readers have written to ask how I arrived at this number.

For example, Richard wrote:

I’m wondering why you’re only projecting out 30 years. You’re only 48. I’m 54 (and retired) and, in my projections and calculations, I go out 40 years. I probably don’t need to plan out that far, but you never know. My last surviving grandparent died just a couple years ago at age 99.

This is a great question. In fact, I believe life expectancy is the most critical factor in determining how much money you need to save — and how much you can spend. Unfortunately, it's also the variable that's most difficult to calculate with any kind of precision.

Why is Life Expectancy so Important?

When the mainstream media publishes an article about early retirement, the comments are filled with folks who say things like, “These people are cheap. I could never live like that. Besides, what if they drop dead tomorrow? Then what good is all of that money? YOLO!”

On the other hand, early retirement forums are filled with people who go to the opposite extreme. “OMG! I can't believe you're only expecting to live until age 90. What about modern medicine? What about gene therapy? What if you live to 108? Boy, then you're going to be sorry you didn't save more!”

Both sides make valid points.

  • If your assumptions about life expectancy are too optimistic, you risk not making the most of the money you've saved. If you budget as though you were going to live to 95 but end up dead by 65, you'll have a lot of money that essentially goes to waste — money you might have used to do the things you'd always dreamed of doing.
  • If your assumptions about life expectancy are too pessimistic, you risk running out of money. If you make choices based on the idea that you'll die at age 65, for example, but live until 95, you'll end up broke. You'll spend decades eating beans and rice.

Here's the bottom line: If you knew when you were going to die, you could calculate how much money you'd need to get from now to then.

Pretend that next week Elon Musk announced he'd developed the Methuselah, a machine that can tell users the precise date and time of their death. It's 100% accurate and somehow can even account for accidental death. When the Methuselah comes on the market, you try it just for kicks. It tells you that you'll die on 06 November 2034. You have about seventeen years left to live.

Based on that information, you'd be able to calculate with great precision how much money you'd need in order to make it to your date of death. You'd know whether you need to continue working or could call it quits right now. You'd know whether you had enough saved to travel the world in luxury or if you needed to live a more meager existence.

Unfortunately — or fortunately, depending on your point of view — there isn't a way to tell with any precision how much longer you have to live. Elon Musk hasn't developed the Methuselah machine. (Yet.) All you can do is make an educated guess.

How to Determine Life Expectancy

One basic way to estimate your time remaining is to consult an actuarial life table. The U.S. Social Security Administration, for instance, has a basic period life table that shows how much time the average person has left to live based on their current age. A 48-year-old man like me can expect to live another 31.32 years — until I'm 79.

Life Expectancy (Actuarial Table)

My cohorts and I each have a 0.4167% chance of dying this year. Of 100,000 of us born in 1969, 93,759 are still alive.

But actuarial tables apply to entire populations. They don't take into account our individual habits and genetic predispositions. For a more customized guess at your date of death, you can consult one of the many online life expectancy calculators. To one degree or another, these tools take into account variables like diet, exercise, and family history.

Here are three online life expectancy calculators that I've tried and liked:

  • The Blueprint Income How Long Will I Live? calculator uses data from the AARP and the National Institute of Health. It asks some basic questions about your health habits to generate a personal profile and estimated life expectancy. According to this tool, I can expect to live until 86.
Life Expectancy (Input Data) Life Expectancy (Results)
  • I'm a long-time fan of the Living to 100 life expectancy calculator. This tool is cool because it takes into account a wide range of factors, then provides specific recommendations for how you can increase your expected lifespan. The downside? To get the most from this calculator, you have to register for an account. Living to 100 says that I will probably live until age 82. (Unsurprisingly, I can add tons more time to my life expectancy by improving my diet and fitness — and reducing my alcohol intake.)
  • The John Hancock life expectancy calculator is short and to the point. Plus, it makes adjustments in real time so that you can see how different factors influence the projections. I could boost my own life expectancy by seven years if I were to drink less beer and wine. This tool shows I should live until age 81.

Based on these life expectancy calculators, I can expect to live until my early eighties. If I lost a little weight, ate more vegetables, and reduced my alcohol intake, my life expectancy would jump by almost a decade! Hmmm….

I'm sure there are other good life expectancy calculators out there. If you know of one, please share it in the comments.

My Own Life

If the life expectancy calculators show me living until 81 or 82 or 86, then why do I use 78 as my projected age of death?

The truth is I'm more pessimistic than that. The truth is that when I give presentations, I often use a date much nearer on the horizon: 04 July 2019. That's right: There's a part of me that thinks I'll be dead in about a year. I'm not joking.

I don't mean to be morbid, but I can't help it. You see, the men in my father's family tend to be short-lived. My dad died of cancer ten days before his fiftieth birthday. His brother died of cancer at age 52. My cousin died of cancer at age 46. My grandmother died of cancer in her early seventies. I have another cousin — one of my best friends, actually — who turns 54 today. He too is fighting cancer. (Thankfully, he seems to be winning the fight.)

With a health history like this, I get nervous. I plan for the worst.

That's one of the reasons I've been so eager to travel while I'm still relatively young. I'm afraid that if I don't visit Europe, if I don't take an RV trip across the U.S., if I don't spend time in South America, then I won't ever get the chance.

Still, I recognize that my situation is different than that of my family members who fell to cancer. For one, I'm healthier. I eat better and exercise more. (That's not to say that I couldn't do more. I absolutely could.) Plus, I have better access to health care. Maybe most important of all, I'm aware and vigilant of potential problems. (I get a colonoscopy every five years, for example.)

I also recognize that my mother's family has completely different longevity stats than my father's family. People on my mother's side live a long time.

Based on all of this, I hold two separate, contradictory ideas in my head when I make projections about my future. On the one hand, I always ask myself what my best option would be if I knew I were going to die in a couple of years. On the other hand, I also explore options based what might happen if I were to reach my projected life expectancy of 78. (I never project beyond that, though.)

What about you? When you plan for the future, how do you decide how long you'll live? How does that affect your decisions? Are you worried about saving so much that you're unable to enjoy today? Are you worried about spending so much that you won't have enough set aside when you're older? How do you account for life expectancy in retirement planning?

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Wise Money Tips
Wise Money Tips
2 years ago

Yes, one of the most important variables and also one of the least predictable. Granted you can goo too far at each extreme like the article mentions. But maybe it’s better to err on the side of caution. Worst case, you leave some extra money to your heirs.

ATrickyGame
ATrickyGame
2 years ago

yeah, it’s a big unknown in general. I had cancer a few years ago in my mid-30s and had chemo/radiation. There’s a good chance I only have 10-20 years in me! A bit morbid, but realistic. However, with that comes increased costs of healthcare, that could cost as much as living another 20-30 years. And then there’s also the chance that I live another 50 years and they find cures to secondary cancers (caused by chemo/rad).

freebird
freebird
2 years ago

I think projecting costs is way more complicated than just knowing your checkout date. Like how will you be living up until that moment? Will you be healthy and active until suddenly one morning you don’t wake up? Or will it be many years spent in an expensive care facility? Then there’s the question of filial responsibility for family members who may have the need but don’t have the LTC coverage. Another wildcard is the possibility of Mr Musk finding a Fountain of Youth, maybe one that can add a decade or two to our natural lifespans. Is this more… Read more »

Craig Wangsgard
Craig Wangsgard
2 years ago

Even if I could accurately predict my date of death, I’m not sure I’d want to know. Imagine how anxiety ridden you’d be knowing your exact date of death. I think I’ll take my best guess, do what I can and hope for the best.

lisa
lisa
2 years ago

I’ve told my husband that I want to go ____ (choose a place) and he asks why. My response is usually, “before we just can’t go.” I’m trying to say that maybe a catastrophic event may happen and we just won’t be able to go (we’ve had those!)…He usually gets quiet and moves on..::sigh:: With our health histories, we’re not exactly the most healthy and youthful people out there. I don’t make a lot of decisions based on mortality, but I DID create an envelope system that lists every bill/insurance company/retirement plan/life insurance policy and their websites/passwords in case something… Read more »

FoxTesla
FoxTesla
2 years ago

I’m glad this topic was touched on. It’s exactly why I am not rushing to have 10 million (or some other large number) locked up in retirement vehicles. Based on three generations on my paternal side all passing away from heart disease/heart attack/stroke in their 70’s, I have a decent idea of my fate. Granted I’ve taken some steps to try and delay the inevitable (different job field, living in a different area, less meat-intensive meals), but I don’t expect miracles. As such, I’ll take a few more of my dollars for today’s use.

JC Webber III
JC Webber III
2 years ago

In my opinion, you are not truly FI unless your portfolio can support your current and anticipated future spending needs AND also continues to grow (at least at the rate of inflation) in perpetuity. Thus no matter how long you live your portfolio will continue to sustain you. When you (and your spouse) do die you can choose to leave your portfolio to charity or your heirs, your choice. This strategy takes longevity out of the equation.

BusyMom @ CountdownToTranquility
BusyMom @ CountdownToTranquility
2 years ago

I think you should err on the side of caution. Because living too long could go from best case to worst case scenario if you don’t have enough.

CalLadyQED
CalLadyQED
2 years ago

I like the idea of putting some funds into a life annuity and purchasing long-term care insurance. This gives you protection against longevity.

(I do work for a company that sells those products, but I’m not saying anyone ought to by ours. I honestly think these kinds of products make sense.)

Sequentialkady
Sequentialkady
2 years ago

My paternal great-grandmother lived to 93 (her wedding photo from the 1890s shows a meat and potatoes farm girl who weighed about 200 pounds) My paternal great aunt lived to 107 My paternal grandmother lived to 97 (broke her hip at 95 and the dr who pinned her together said she had the bones of a 50 something woman — she walked everywhere). I take after dad’s side of the family (he’s 76 and still has all his own teeth! no root canals, even!). I had a bone scan at age 40 and it was “off the chart” I had… Read more »

S.G.
S.G.
2 years ago

I get you, but that’s not how I think. For me theres “now” and there’s “far in the future” and I try to optimize both. I am not willing to live for the future, nor am I willing to forget it’s there. My kids are young. We don’t have enough to stop working, so we havr a schedule that is designed for compromise: I work PT and we put aside about 20%, give or take. Right now my life is more about time and purpose than money. I wish I could work fewer hours, but it’s not a questuon of… Read more »

Jim
Jim
2 years ago

Well! Life expectancy doesn’t affect my spending plans. I’m happy with a low enough spend rate that should last any realistic future scenario (and yes I realize something unrealistic can happen but I’m not planning for it). True I’ll probably leave a substantial surplus but this doesn’t bother me– quite the contrary because to me the key to ‘enjoying today’ isn’t more spending, it’s having the cushion.

Fred
Fred
2 years ago

I’m in my mid 50’s. 78 is the age I use too. Heart disease has taken many relatives from 38 to 75. My Dad made it to 80 but he was a very rugged man. Keeping with family tradition, I have had a heart attack already. I do the healthy stuff now and the Doc’s keep an eye on me. I’d say odds are I’ll go by 75 but I added a few years to make sure my money will (probably) last.
I plan to adjust my spending as time passes. I want to spend more than I leave behind.

Joe
Joe
2 years ago

In addition, you need to take into account the Health expectancy. You could live a long time, but you might not be healthy enough to do all the things you want. That’s why I want to travel before I get too old. My mom is going to be 70 this year and her mental function declined quite a bit. She can’t travel anymore. She’ll probably live many more years, but it’s not the same as when she was young.

James
James
2 years ago

Hey J.D.

Re your point about wanting to travel, you’ve GOT to do it.

I did a lot of travelling, when I was younger.

Yes, it has probably set me back a little with retirement goals… but I wouldn’t change it for the world.

It’s a big world out there. See it while you still can.

Jennifer
Jennifer
2 years ago

My husband and I are in our 50s, and we’re ALMOST FI. Medical insurance is definitely the deciding factor. Two thoughts here. One, I have always planned as though I would live at least as long as the age of the youngest death of a grandparent (80) and maybe as long as the age of the oldest (95) — until my mom died of a hemorrhagic stroke last year, in otherwise very good health, at 74. DH is several years older than I, and has a number of chronic conditions, with both parents dying (smoking-related) at 76. Now, I’m definitely… Read more »

RichardP
RichardP
2 years ago

Well, that was a bit grim. Just remember to up your estimate occasionally. The Social Security table shows a 40-year-old should expect to reach 78 but a 60-year-old should expect to live to 81. The longer you live, the greater the age you can expect to eventually achieve.

JT Smith
JT Smith
2 years ago

Personally I don’t think we should even think about life expectancy. I recommend planning to retire when your nest egg returns at least enough money in perpetuity to survive on AND cover inflation.

Under those conditions life expectancy should be irrelevant.

Bo
Bo
2 years ago

J.D.,

The longevity illustrator provided by the American Academy of Actuaries and Society of Actuaries is a good resource: http://www.longevityillustrator.org/Profile?m=1

I also wrote something on this topic that goes into detailed calculations that you might find interesting: http://www.apsislife.com/how-to-calculate-life-expectancy/

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