How Long Will You Live? Making an Informed Guess Can Be a Lifesaver.

Planning for retirement involves accurately estimating your life expectancy, but numerous Americans lack proficiency in understanding longevity.

According to a report released by the TIAA Institute last year, merely 35% of American adults were able to accurately respond to a query about the anticipated lifespan of a 65-year-old male and female. The institute states that, according to data from the Social Security Administration estimating enhanced lifespans for various demographic segments, the expected age is 84 years for males and 87 years for females.

Miscalculating the likelihood of a lengthy lifespan may result in inadequate savings and an early claim to Social Security benefits compared to what you might do with a more accurate evaluation. Conversely, overestimating how long you might live could cause you to be overly cautious with your expenditures.

Financial planning software necessitates inputting an estimated lifespan. As Chris Briscoe, the director of financial planning at Girard Advisory Services in King of Prussia, Pa., points out, "It’s common for individuals to request, 'Make me live only up to age 80.'"

It’s easy to see why some might be confused. Over the past few years, life expectancy in America has dropped to an average of 74.8 years for men and 80.2 years for women as of 2022. This figure represents the anticipated average remaining lifespan from birth. Consequently, half of all individuals would naturally outlive these averages. Factors such as "deaths of despair," which include suicides, fatal overdoses due to drugs or alcohol, and long-term alcoholic conditions, have played significant roles. More recently, the impact of the COVID-19 pandemic has further exacerbated this trend.

Even though it may be disheartening, this trend line represents life expectancy from birth. This means it encompasses all those who pass away during early and midlife stages. Individuals who reach the age of 65 can expect to have a longer lifespan. Additionally, couples generally fare even better; for instance, there’s a 25% probability that one partner in an averagely healthy 65-year-old heterosexual couple will still be alive at the age of 96. Furthermore, wealth appears to play a role since studies repeatedly indicate that individuals with higher incomes typically surpass the average life span compared to less financially well-off people.

Despite what headlines suggest, numerous individuals anticipate living as long as their parents do. Nevertheless, research from 2018 involving extensive genetic records revealed that heredity contributes less than 7% to an individual’s lifespan, contrasting sharply with earlier estimations that placed this figure between roughly 20% and 30%. Furthermore, several illnesses that used to be lethal a few decades back—like certain forms of cancer—are now more treatable thanks to advancements in medical science.

In conclusion, it's beneficial to approach retirement with a realistic assessment of how long you might live. Longevity calculators can provide an estimation based on your health condition and various other elements.

Even with an average life expectancy after reaching 65 years old, many retirees live beyond the point where collecting Social Security benefits breaks even regardless of when you start claiming them. This breakeven point occurs when your total collected benefits become equal—whether you opt for earlier, smaller payouts or wait for later, larger ones. If you decide to claim before full retirement age—which is set at 67 for those born in 1960 and afterward—you'll face a permanent reduction of up to 30% in each payment received. Conversely, delaying claims until turning 70 can increase these monthly amounts by as much as 124% relative to what they'd have been had you claimed at full retirement age.

Carolyn McClanahan, both a financial advisor and a physician, conducts personalized evaluations of her clients' potential lifespans. For those who aren't particularly attentive to their health—such as individuals in their 50s with issues like hypertension, diabetes, and obesity due to excess weight—she typically applies an average life expectancy estimate.

For customers who prioritize self-care, McClanahan assumes a life span of 100 years. Nonetheless, she strives to make sure that even her most health-conscious clients do not compromise their current quality of life for potential long-term benefits. "To me, it feels incorrect for individuals to concentrate solely on an uncertain future without fully enjoying the present."

Send an email to Elizabeth O'Brien at elizabeth.obrien@barrons.com