When I prepare retirement projections for clients, I usually assume a life expectancy of 95 or so. Invariably, when I review the projections with the client, they say "there's no way I am going to live that long". But once we start discussing the longevity of their relatives, we find mothers or fathers and aunts or uncles who lived into their 90s and modern medicine has come a long way since those people were born.
So what is a reasonable estimate of how long a person will live? The answer is critically important since a shorter life expectancy allows an individual to withdraw more money in their retirement years. When you start analyzing how much you can withdraw from an investment portfolio, the figures go down dramatically if you assume 30 to 35 years of withdrawals.
A recently released study by researchers at the Institutional Retirement Income Council reported that half of all 65 year old females will live to almost 88. 25 percent will live until age 93 and 10 percent will live until 98. For men the figures are slightly lower. 50 percent will live to age 86, 25 percent will live to just under age 91 and 10 percent will live to just under age 95. When you are working with joint life expectancies, there is a 50 percent chance that at least one member of a couple will live to age 91 and a 25 percent chance that at least one member will live to be 95 and there is a 10 percent chance that at least one member of a couple will live to be almost 99.
This tells us that if you want to be conservative in your retirement projections, you need to assume that your retirement assets may very well have to last into your mid 90s.