How Long Must Your Money Last In Retirement?

The Longevity Illustrator - a useful tool for estimating how long you may live

Photo by Alex Harvey 🤙🏻 on Unsplash

If you can tell me when you are going to die, I can answer a lot of questions for you.

Questions like whether or not you should take the pension or lump-sum option on your retirement plan. Or when to start Social Security. Or how long your money needs to last in retirement.

Of course, no one knows how long they will live or when they will die.

Nevertheless, my job as a financial planner is make sure my retired clients never run out of money during their lifetime, no matter how long that may be.

In 1935 when Social Security started, the average life expectancy was 61.7 years. Back then, you were lucky to live long enough to retire. If you had any retirement savings, it didn’t have to last all that long.

Today, retirement can last for decades. The Social Security Administration now estimates that the average person who begins receiving benefits at age 65 can expect to live to age 84.3 or 86.6, depending on if they are a man or woman.

The problem with averages, however, is that they apply to very few specific people.

The Longevity Illustrator

To get an idea of how long you might live check out the Longevity Illustrator put out by the Society of Actuaries and American Academy of Actuaries.

By answering a few simple questions, you can glimpse your actuarial future and get a better idea not of how long the average Joe might live, but of how long you might expect to live.

Based on the Social Security Administration’s mortality tables and four key indicators of longevity (age, gender, smoking status and overall health) the Longevity Illustrator attempts to show the Probability of Living to a Certain Age. In my case, the probability of living to age 95, for example, is 25% for me; 35% for my wife, Lynn.

The Longevity Illustrator also provides a Planning Horizon that shows the probability that at least one of us will live a certain number of years. Interestingly, the likelihood of one of us living to age 95 is greater that it is for either of us living to that age. For example, even though neither of us is likely to live to age 95 (there is a 50% probability that at least one of us will – we just don’t know which one).

The third chart in the Longevity Illustrator shows the Probability of Living for a Specified Number of Years. Basically, it takes the same information as above and presents it in a different way.

In our case, Mike has a 50/50 chance of living another 25-30 years; Lynn’s 50/50 number is 30-35 years. As with the Planning Horizon, there is a 50/50 chance that one of us will live another 40 years or more. If we were to design our retirement plan around an assumed death at age 90, there is a good chance one of us would come up short and run out of money before they run out of time.

Obviously, many factors determine your life expectancy. Calculators like this should rightly be taken with a grain of salt, but they can be useful planning tools that help illustrate just how long of a retirement you may need to plan for.

To see how long your money may need to last in retirement, click here.