The Role of Life Expectancy

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tennisplyr
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The Role of Life Expectancy

Post by tennisplyr »

Was curious as to how much you rely on life expectancy data in planning for your retirement future. In other words, is your spending, withdrawal and investment strategy heavily influenced by your expected years left or do you pretty much ignore the data. 😇
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midareff
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Re: The Role of Life Expectancy

Post by midareff »

Since I don't know how long I will live it makes it difficult to use that data. I know what the average expectancy is for my born on date, what span my parent's had, other than that, not so much. No one wants to go with life unlived due to monetary constraints, or spend the last few dining on dog food. Seems to me most figure retiring at 65 and living another 30 for planning purposes.
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Re: The Role of Life Expectancy

Post by TheBeej418 »

Mortality is always a tough one! Mortality tables tell me I've got until my late 70's, family history tells me I've got until about 90. I use 95 when planning for my goals because I want my money to outlast me, not the other way around. I think you have to consider life expectancy when planning otherwise it's like me giving you a credit card and saying to spend what you need without knowing the limit. Is your dream retirement going to be lavish restaurants and not worrying about the right column on the menu (prices) or being cared for by the state and their resources? I would guess you prefer the idea of one over the other, therefore you need to do your best to plan accordingly.
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Re: The Role of Life Expectancy

Post by NoRoboGuy »

Yes, life expectancy is an important consideration, particularly if you have a family history of short or long life. Since no one knows just when the bell tolls, you might want to add a generous fudge factor. For example, I added around 7 years to my calculation. You could find one of the online life expectancy calculators out there, and then adjust accordingly. Good luck!
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Re: The Role of Life Expectancy

Post by Sbashore »

I'm retired and in the distribution phase of my investing life. I use Excel to compute two values. One is my allowable spending for the year ahead, my budget if you will. The second is another number based on my life expectancy. I use that as an upper limit to spending and to get a little perspective on what is available to me to spend. I estimate my life expectancy to be long due to genetics.
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technovelist
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Re: The Role of Life Expectancy

Post by technovelist »

I consider it pretty heavily, especially since I have been fortunate enough recently to get the best possible rate on life insurance. Also, my mother is 88 and still in good health, and my father lived into his 80's despite having been a smoker in his earlier years. So I'm planning for the possibility of living to 100.

Fortunately, life annuities provide a way to reduce the risk of running out of money.
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Re: The Role of Life Expectancy

Post by WorkToLive »

I apply life expectancy in the vague sense that as a currently healthy 40 year old, I plan to have my assets last until age 95 (realistic) or 100 (conservative).
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Re: The Role of Life Expectancy

Post by tennisplyr »

I'm 64 and retired. I use life expectancy with a grain of salt. We've recently seen some friends die or get seriously ill lately and am starting to feel that I really want to live now and not worry so much about 85 or 90 which may not come or be any fun anyway. 🙏
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Re: The Role of Life Expectancy

Post by nisiprius »

I am afraid that if you look at a full life table--one that shows the percentage of the population that survives to various ages--the big take-home is

...just how uncertain and variable remaining life expectancy is.

The average life expectancy isn't useful to an individual making individual plans. It's only useful to, say, an insurance company trying to figure out the total number of dollars it needs to have to pay a large group of people.

Here is one example:

http://www.cdc.gov/nchs/data/nvsr/nvsr62/nvsr62_07.pdf

Look at table B, "number of survivors." Let's look at the leftmost column, all races, origins, and both sexes.

Of 100,000 born, 83,895 are still alive at the retirement age of 65.

You can see that even by age 70, only 77,474 are still alive. That means there is 7.8% chance of having less than five years of retirement. That is three times as high as the chance of having a specific number come up on one spin of a roulette wheel.

And you can also see that even by age 95, 9,228 are still alive; that means there is almost an 11% chance of living beyond age 95, and being outside the "30 year" planning horizon traditionally used in "safe withdrawal rate" studies.

So you have a good casino-gambling-really-happens-to-real-people chance of living
...anywhere from 5 more years to 30 more years.

That 5-to-30-year uncertainty is much more important than the fact that the average number of additional years happens to be 19.1 years.

The same table shows that a full 2.4% of retirees will live to age 100. I think you will agree that this accords well with personal experience. I have known two centenarians in my circle of acquaintances, one a woman who was healthy, alert, and active, and the other a man in a nursing home who was not. Living to age 100 is about the same now as it was a century ago: rare enough to get you into the local paper, not so unusual as to be more than local news.

There was a news story today about a 114-year-old woman who had to lie about her age to join Facebook.

P.S. Correlation between longevity of parents and children is quite low, only 6% in one study. The idea that you will have a long or short life because of being from a long- or short-lived family is almost a myth.
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Aptenodytes
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Re: The Role of Life Expectancy

Post by Aptenodytes »

I take Nisi's view on this question. The practical implication is to have a plan that has a decent chance of getting you to age 105 financially intact. I realize that it is hard to predict so far out, and much of what will determine our security will be out of our hands, but if I have a trajectory that looks like it fails most of the time by age 90 and one that looks like it makes into the 100+ intact, I choose the latter.
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Re: The Role of Life Expectancy

Post by kramer »

When I was doing Monte Carlo analysis prior to my retirement, I was really surprised how this factor washed out. Essentially, just as often as a long life expectancy caused failure, the portfolio succeeded when it would have failed because the retiree died sooner than expected. And so the rate of financial failure was not affected much.

Also, in my models I was an early retiree, so by the time Social Security kicked in at age 70, it was a nice inflation-adjusted boost and one's financial fate was pretty much decided by then.

The key is probably picking the right life expectancy average for your model and like most I like to be conservative in assumptions. Life expectancy at age 65 has consistently been increasing by one year per decade and shows no signs of letting up. As a late 40's guy, I add 4 years for 4 decades and add a year for healthy living to today's life expectancy at age 65. So that is probably padding the actual expected number by a couple of years.

In addition to all this, I plan to buy some inflation-adjusted annuities in my early to mid-70's and hope to reap some mortality credits while reducing my risk.
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Re: The Role of Life Expectancy

Post by Quickfoot »

The mystery of life expectancy is why it is advisable to purchase SPIAS to provide for base living expenses. Annuitizing 10-40% of the portfolio decreases risk and increases the safe spend rate. Also retiring early is a good case for SPIAS, we plan to retire by 60 and thus need our money to last potentially 40 years (arguably longer, perhaps even 50 or 60 years with pending medical advances).
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ResearchMed
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Re: The Role of Life Expectancy

Post by ResearchMed »

tennisplyr wrote:I'm 64 and retired. I use life expectancy with a grain of salt. We've recently seen some friends die or get seriously ill lately and am starting to feel that I really want to live now and not worry so much about 85 or 90 which may not come or be any fun anyway. 🙏
We are a bit older, but of a similar mindset, especially as *we* have both had health scares, one of which came far too close to death, and another was almost a serious and permanent disability.
Already, we are beginning to "feel our age", despite very active hobbies (physical and mental).
We can no longer go on long hikes due to residual effects of an injury, for example, as much as we used to enjoy that.

And parents lived reasonably long (approaching 90 for me; MIL is mid-90's and living well, totally independently, refusing any help of any sort). No aunts/uncles died young.

DH is still working, and has no interest in retiring, but we have decided to take some of those major (and in some cases expensive) vacations sooner, bunching them up in the next few years, hoping our health holds.

IF that means we'll take far fewer and less expensive vacations later on, that's a trade-off we have specifically made.

In our case, it's a bit weird, because we can't touch the main pot, which is in DH's 403b, which he cannot touch until he retires (or goes something like less than half time). So we can't even spend that if we wanted to.
Once we CAN get at that money, we'll probably go for a few laddered SPIA's plus max SS benefits, and make similar decisions about spending a bit more "now while we can", recognizing that we will probably need to scale back later. It might not be filet and lobster, but it won't be cat food. Or maybe it *will* be some filet and lobster. We'll find out later.

A few months ago, a close colleague almost exactly DH's age died suddenly and completely unexpectedly. Poof. Game over.

We then decided to spring for a long cruise over the holidays, despite the extra cost, because that's a time that DH does feel he can be "away" and enjoy it more.
And we've made deposits on a few other cruises, and are planning another trip to visit friends in Europe, after having had a ball with the (long overdue) first trip like that a few months ago.

YOLO!

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Re: The Role of Life Expectancy

Post by obgyn65 »

I am 49 and plan until age 95. Not more, not less. I have not included any probabilistic model regarding life expectancy in my retirement spreadsheet.
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Re: The Role of Life Expectancy

Post by Dandy »

Pretty much ignore. Averages say live to about 85 making sure I have "safe" funding to age 90. Wife and I had one parent that made it to age 90 and one that died in their 80's. So genes are probably that one of us will live to age 90. The challenge is what will be the out of pocket medical costs to live till your 90+?
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Re: The Role of Life Expectancy

Post by longinvest »

I think that it is useful to know that (almost?) nobody makes it to 120 years old. So, a very healthy person with healthy habits, a family history of high longevity, and a high fear of running out of money can still put a cap on the number of retirement years to fund. An very wealthy person could fund an insanely expensive LMP portfolio (TIPS ladder) that lasts to her 120th birthday and be confident to die before then.

I think that the average person (average health, habits, and family history) can safely target 100 years old, and adjusts along the way at 70 and every 5 years thereafter. On the other hand, I do not think that average Life Expectancy is a useful planning tool for an individual; it's a tool for funds that depend on life expectancies of a pool of people: SPIAs, Social Security, etc.
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Re: The Role of Life Expectancy

Post by kaudrey »

It's a tough question - no crystal balls. But I do plan for at least one of us to get to 95. Three of my grandparents lived until 87 or later. My parents are both alive at 77, no aunts or uncles have yet passed. There's longevity in the family.

On the other hand, my DH is adopted and has no idea of his biological family's information.

Having said that, my projected expenses spreadsheet assumes we will spend quite a bit more in the early years (there is a big "travel" line item for the first 10 years), and less later. Worse comes to worse, toward the end we could live on my pension and our SS, but we are definitely planning to spend quite a bit more than that when we first retire.

My parents' 20 year retirement has given me a good example - they traveled a bunch at first, rented a place in Florida for 3 months every year for about 18 years etc. My mother has a disease now that limits her mobility, so they no longer travel, she quit playing golf, etc. There expenses (outside of medical) are quite low at this point.
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Re: The Role of Life Expectancy

Post by Enkidu »

I use mortality tables do "what-if" modeling for my wife and I rather than base decisions on life expectancy alone. We are both 62 and are in reasonably good health, but no family members have had extreme longevity.

What if we-

Both die before 75
Both die around 85
Both live longer that 95

One dies before 75 the other after 95
One dies before 75 the other around 85
One dies around 85 the other after 95

Using this approach I found that the lowest risk to our financial security is if we both die around the same time, even if we both live past 95. The highest risk is if I die early, and my wife lives past 95. The risk is not symmetric because my pension has a 50% survivor benefit, but actually increases by 10% if my wife was to die first. (I don't make the rules)

So I can make us better off in the highest risk situation without making us worse off in the lower risk situations by delaying my SS to 70 and term buying life term life insurance in case I die early. We may also consider SPIAs after 75 or so, depending on what develops. If we both die early we need to be sure that our wills leave the remaining assets as desired.
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Re: The Role of Life Expectancy

Post by thenextguy »

What's real interesting on this topic is that there are those that feel we are on the verge of making a big leap in life expetency. That may not impact most of us, but those in their 20s may live well into their 100s.
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Re: The Role of Life Expectancy

Post by tennisplyr »

thenextguy wrote:What's real interesting on this topic is that there are those that feel we are on the verge of making a big leap in life expetency. That may not impact most of us, but those in their 20s may live well into their 100s.
Perhaps, but I find it curious that few are talking about the quality of life. For me, if I live to 90 or 95 and can't take advantage of the money that I've accumulated is not what I'm looking for. :|
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Re: The Role of Life Expectancy

Post by nisiprius »

tennisplyr wrote:
thenextguy wrote:What's real interesting on this topic is that there are those that feel we are on the verge of making a big leap in life expetency. That may not impact most of us, but those in their 20s may live well into their 100s.
Perhaps, but I find it curious that few are talking about the quality of life. For me, if I live to 90 or 95 and can't take advantage of the money that I've accumulated is not what I'm looking for. :|
Agree completely... but information about the statistical distribution of "quality of life" is something I haven't been find.
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Re: The Role of Life Expectancy

Post by Mike Scott »

Given a lot of random bits of information that may or may not be true, I'm planning that at least one of us will make it to 100. Time will tell.
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Re: The Role of Life Expectancy

Post by HomerJ »

If I live too long, SPIA with my remaining money will probably solve the problem.
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Re: The Role of Life Expectancy

Post by SimpleGift »

tennisplyr wrote:Was curious as to how much you rely on life expectancy data in planning for your retirement future.
We don't necessarily rely on life expectancy for financial planning, but since we've both turned 65, we've at least looked at the survival probability chart (below). It appears at least one or both of us has a strong chance of reaching age 85 (70% probability) — but then the joint survival probabilities fall off pretty fast, to only a 20% chance of reaching age 95. In truth, we're both planning for age 100 and hoping for the best!

Image
Source: Financial Planning Association
(Note: Based on data from Social Security Administration period life table for 2007.)
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Re: The Role of Life Expectancy

Post by rca1824 »

tennisplyr wrote:Was curious as to how much you rely on life expectancy data in planning for your retirement future. In other words, is your spending, withdrawal and investment strategy heavily influenced by your expected years left or do you pretty much ignore the data. 😇
I assume I will live forever, to be safe. My goal is to leave behind generational wealth, so I want my real net wealth to remain relatively constant throughout my retirement years. Accruing large savings and drawing down 2-4% a year should guarantee that.
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Re: The Role of Life Expectancy

Post by nisiprius »

And, note: "The days of our years are threescore years and ten; and if by reason of strength they be fourscore years, yet is their strength labour and sorrow." Proverbs 90:10, traditionally attributed to King David, about 1000 BCE. So there's certainly been some progress in the last three thousand years, but surprisingly little.
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