WHAT IS RETIREMENT’S biggest financial risk? Simply put, you don’t want to run out of money before you run out of breath. Therein lies the great conundrum: You don’t know how long you’ll need to make your savings last.
To get a handle on the issue, forget looking at life expectancies as of birth. Those are dragged down by all the folks who die before reaching retirement age. Instead, you might consider life expectancies as of age 65. According to the Social Security Administration, a 65-year-old man’s life expectancy is age 84, while a 65-year-old woman can expect to live until 87. Bear in mind that these are medians. Half of retirees will die before these ages and half will live longer.
How much longer? Social Security estimates that a quarter of today’s 65-year-olds will live beyond age 90 and 10% will live beyond age 95. Who gets so lucky? Typically, it’s more affluent Americans, who have better medical care over their lifetime and are more careful about diet and exercise. According to a Social Security Bulletin article, men born in 1941 who earned above-average incomes can expect to live 5.4 years longer in retirement than those with lower earnings. By contrast, among men born in 1912, the life-expectancy gap was just 0.7 years.
Another consideration: If you’re a couple, you have two tickets to the life-expectancy lottery—and there’s a good chance that at least one of you will live to a ripe old age. The Society of Actuaries estimates that there is a 51.8% chance that one member of a couple will survive to age 90 and an 8.7% chance that both will survive to that age. The Society notes that this may underestimate the odds, because there’s evidence that married couples live longer than those who are single, divorced or widowed. Want to check out your life expectancy? Try the simple life expectancy calculators offered by Social Security and the Society of Actuaries.
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