Avoid the age pitfall

One of the questions retirees face is an estimate of how long their retirement assets must last.  Another way of putting it is “how long do you expect to live?”  it is misleading to look at average age statistics because the average life expectancy statistics include infants that die shortly after birth, teens that die in car wrecks and other people who die for reasons that have nothing to do with old age.

While the life expectancy at birth today is 78 years, the average baby boomer can expect to live to age 83. The reason is that statistically  if you survive the accidents and diseases of the young the older you are the longer your expected life expectancy.  Someone living to age 75 today has a life expectancy of 87.  Here are some other probabilities: a 65 year old man has a one in four chance of living to age 92. Married couples that are 65 have a one in four chance of at least one spouse surviving to age 97.  A 25% chance is way too large to ignore.

This is important for several reasons.  If you have a pension plan, your employer will give you a choice of survivor benefits.  It is a mistake to assume that your spouse will pre-decease you even if they have health issues.  People who underestimate their lifespan may dump most of their money into low yield treasuries or CDs too soon.  If rates drop, as they have in the last few years, they risk running out of money as they are forced to spend down their principal to maintain their lifestyle.

Financial planners are beginning to use a lifespan to age 100 more often, and even then they may be too conservative.


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