You Are Likely to Live Longer than You Think - (Week 8)

 


Two weeks ago I talked about how money might not be able to buy you happiness, but it can buy you time – time to do all of the things you didn’t previously have time to do.  In fact, that is one of the things I’m enjoying most about retirement thus far.  I have more time to do things.  Not just the big things, but the small daily tasks as well.  When I was working, I always tried to accomplish errands as efficiently as possible.  Not only did I bundle the errands together, but I would think about the most efficient route to get from point A to point B.  For each stop, I would even consider the side of the road it was on.  After all, right hand turns are much faster than left hand turns.  Now, I don’t worry about any of that.  It’s no longer a big deal if I make more than one trip to the grocery store on the same day.  While it’s great to have extra time, I also worry about having too much time on my hands.  What if I wake up one morning and have absolutely nothing to do?  Such a concept while I was working actually sounded pretty great.  But now, not so much.  Fortunately, that has not been a problem thus far, but this is only week 8. 

One of the biggest challenges of building a retirement income plan is not knowing how much time we have.  Making your money last for only 20 years is much easier than 30 or 40 years.  With that in mind, I have a quiz for you this week.  How many of the statements below are correct?

1.      The average life expectancy in the United States is 78.8 years old

2.      A 65-year-old male is expected to live to 84.2 years old

3.      A 65-year-old male with a college degree that is in good health and has never smoked is expected to live to 92 years old

4.      A 65-year-old female is expected to live to 86.8 years old

5.      A 65-year-old female with a college degree that is in good health and has never smoked is expected to live to 93 years old

6.      A 75-year-old male is expected to live to 86.9 years old

7.      A 75-year-old female is expected to live to 89 years old

8.      About 10% of all 65-year-olds in the United States will live to the age of 95

9.      If a husband and wife are both 65, there is a 50% chance that at least one of them will live to the age of 95

 

If your answer was “all of the above are true,” then you aced the test.  Life expectancy depends on everything from your current age, your sex, your overall health, your educational background, and your income level.   According to ChatGPT, life expectancy of a newborn baby in the United States is indeed 78.8 years old.  However, once someone gets past childhood diseases and accidents that tend to impact younger people, their life expectancy increases.  The bottom line is that the longer you live, the longer you are expected to live.  In addition, wealthier people generally have access to better health care, therefore, on average, they live longer than people that struggle to pay their bills.  White males and females also live longer on average than minorities.  And of course, women live a couple of years longer on average than men.  The bottom line is that if you are white, female, generally in good health, have a college degree and have an income of $80,000 or more, you can expect to live well beyond the average life expectancy.  If your parents or grandparents lived into their 90’s, then there is a decent chance you will make it to the magical age of 100. 

From a retirement income planning perspective, my biggest issue with a single life expectancy number is that it implies that you can expect to live to that age give or take a few years one way or another.  If, for example, you tell someone that their life expectancy is 85, most people are likely to conclude that they will die between the ages of 82-88.  The reality is that actual deaths occur in a wide range. 

The chart below shows the expected age of death for 1,000 healthy 60-year-old females.  You will see that while a sizable percentage do indeed die between 89-95, a lot die at ages 95 and above.  And sadly, a pretty sizable percentage die prior to 70.

A graph with numbers and lines Description automatically generated

Age of Death for Healthy Females with a Current Age of 60

What this graph clearly demonstrates is not only how uncertain our age of death is, but that any sensible retirement plan must protect you from the possibility that you will live to 100.  The biggest risk of any retirement plan is not that you are going to die early, but that you are going to live too long.  Therefore, securing an income that is guaranteed to pay you as long as you live – no matter how long that is – should be an important part of any plan.

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