Most financial planners use a life expectancy of between age 90 and 100 when creating retirement plans. Clients are often surprised that we assume such a long life span. Yet life expectancy tables show that we’re not being unreasonable, especially for women.
Life expectancy tables give an “average” expected length of life, which means that the average person of a particular age can expect to live to the stated age, and 50% will live beyond that age. As a person gets older the life expectancy changes. For instance the 2006 census life expectancy tables indicate that at age 30 a male is expected to live to age 77, but if that same male reaches age 50 his life expectancy changes to age 79.
CSO mortality tables indicate that 20% of males will live beyond about age 87 and 20% of females will live beyond age 90. Health care improves rapidly such that each generation is living a few years longer than their oldest parent or grandparent. In financial planning life expectancy is an important component of our retirement plans. We can’t know for sure at what age we will die, so it is prudent to err on the long side. This is one area where it’s better to overestimate than underestimate.
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