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Life Expectancy and Your Financial Plan

Apr 25 2019

By Jamie Hopkins

In a lot of ways, planning for retirement income is more challenging than saving for retirement. The time period you will spend in retirement is much more uncertain than the time period you will have to save for retirement. You will likely work into your 60s—barring an unforeseen disability, death or other traumatic event—and from then on it’s unknown how long you’ll spend in retirement.

Income planning for an unknown length of time is difficult. Will you spend one day in retirement or 14,600 days (roughly 40 years)? The amount depends on when you retire and how long you live.

Longevity risk is a very real threat to your retirement income plan, but it’s not entirely a bad thing – it means you’ve lived a long life. The challenge is having the ability to fund a long retirement. Luckily you have a few options and strategies to help in your retirement income planning. The other challenge is the lack of awareness around life expectancy and the likelihood longevity risk will apply to you.

Your Life Expectancy Changes as You Age

According to U.S. Census Data, Americans spend roughly 18 years in retirement, on average. But averages tell an incomplete and potentially misleading story when it comes to longevity. For example, if you put Bill Gates and any other American in one room, the average wealth of the room is suddenly tens of billions of dollars. But that doesn’t tell an accurate story.

Let’s look at a husband and wife, both 65 years old. What are the chances of one of them living another 20 years? 30 years? Longer?


Chance of one spouse reaching that age










Are you surprised? Many people aren’t well aware of their life expectancy and the very real possibility of living longer than anticipated. A Society of Actuaries report showed that only about 43 percent of retiree respondents underestimated the average age to which they should expect to live by more than five years.

In addition to the Vanguard Calculator using Society of Actuary data, a number of free online longevity calculators – such as Living to 100, BluePrint Income and Actuaries Longevity Illustrator – go deeper than the national data and try to look at your unique health and personal factors that could impact longevity.

Defer Social Security, Delay Retirement

Longevity risk awareness is only half of the challenge to retirement income planning. Many people retire between ages 62 and 65 and the most popular Social Security claiming age is 62. If longevity risk could deplete your retirement savings, you should consider working longer and deferring Social Security for as long as possible. Honestly, those are the two most powerful strategies to reduce a retirement income shortfall.

Let’s say you’re at full retirement age at 66 years old. If you wait to claim your Social Security benefits at age 70 instead of age 62, you would receive almost double the amount of income. So if you were expecting to get $1,000 a month at age 66, and you claimed at age 62, you would receive $700 a month. If you waited until age 70, you would receive $1,320.

The reason to defer Social Security benefits for as long as possible is because Social Security payments continue for life and are adjusted for inflation. The longer you live, the more you benefit from deferring Social Security. Because the general “break-even” point for Social Security is below the average life expectancy today, most people should defer benefits if they can afford to.

And that is the biggest challenge with retirement income planning. Because if you’re retired but want to defer Social Security, you might need money to pay bills and general expenses. Most people have to keep working if they want to defer Social Security.

As you age, the likelihood of staying in the workforce gets harder – millions of Americans over age 65 are unable to physically work anymore. If you can work just a few months or a year longer than you intended, it can have a huge impact on your retirement. A 2018 Stanford study showed the power of working three to six months longer – it had the same impact on the longevity of your retirement portfolio as saving an additional one percent of your salary for 30 years! So even if work is physically and mentally challenging right before retirement, huge benefits come from delaying retirement a few more months.

Other Longevity Risk Strategies

You can deal with longevity risk a couple of other ways if deferring Social Security or delaying retirement aren’t possibilities.

  • Reduce expenditures in retirement. This will help your money last longer.
  • Save more money while working in order to build a larger nest egg for retirement.
  • Invest more in equities (this strategy carries some risk), but it carries some risk.

If you want to reduce risk rather than increase risk and still combat longevity risk, consider using annuities. Deferred income annuities and qualified longevity annuity contracts (QLACs) can be designed to address longevity risk as they continue payments for life.

Retirement income planning is a lot like trying to hit a moving target in the wind. The target is your personal retirement goals, the wind represents the changes that will occur during retirement, and the movement is longevity risk. Get started by being aware of your longevity and then you can build a plan that addresses that risk so you don’t outlive your money in retirement.