Consider Your Life Expectancy

Have you given much thought to how long you will live? In a recent survey, more than eight out of 10 workers were unable to give a personal life expectancy that is close to the actual life expectancy for their age. Only about one-third expected to live longer than the average life expectancy.¹

Estimating your own life expectancy is one area where it's probably better to overshoot. Planning financially to live a long life may help you avoid a retirement income shortfall, regardless of how long you actually live.

Steps to a Longer Life Expectancy
There are two explanations why people under-estimate how long they will live. First, life expectancies have grown significantly over the past several decades. In 1941, a 45-year-old male could expect to live to age 70. In 2002, life expectancy for a 45-year-old male increased to 78.^2,3

Second, life expectancy grows longer with age. A 70-year-old male in 2002 had a life expectancy of 83, five years longer than a 45-year-old. And an 80-year-old male in 2002 had a life expectancy of 88, more than 10 years longer than his 45-year-old counterpart.⁴

Don't Risk a Cost Overrun
If you underestimate how long you might live when planning for retirement, you run the risk of outliving your assets. By including a realistic expectation of life in your overall retirement plan, you can determine how much you should be setting aside now.

Remember that medical bills, long-term-care costs, and other expenses commonly associated with the onset of age can strain even a robust portfolio. In fact, you may want to base your retirement planning on the assumption that you will live five years longer than your estimated life expectancy to provide a financial cushion.

It's not much fun trying to calculate how many years you might have left. But underestimating your life expectancy could be a mistake that has far-reaching consequences.

1) Society of Actuaries, 2004
2) 1941 Standard Ordinary Mortality Table, National Association of Insurance Commissioners
3, 4) National Center for Health Statistics, 2003