Planning for Life Expectancy

Submitted on Mon, 04/06/2015 - 1:29 am

One of the confusing things about planning for retirement is trying to figure out how long it will last. It's as if I was crouched at the start of a race without any idea how long the race will be. If it's going to be short, maybe I should sprint for it and not worry too much about running out of energy. But if it's going to be a marathon I'll want to nurse my resources and watch them carefully so I don't run out too soon. But getting some idea how long the race will be means figuring out my life expectancy.

Life expectancy is a funny concept. First of all, it's not fixed, it changes all the time. When you're born you have a certain life expectancy based on the year and your sex. But every year you live increases your life expectancy a little bit. That's because each year you make it past some of the things that pushed the average down. So the older you get, the older you COULD get.

And life expectancy is just an average. So if my life expectancy is 85, that doesn't mean all i have to do is have enough resources to make it to 85 and I'm all set. It means I have a 50% chance of living at least that long. So if I have exactly enough money set aside to last until the age of my current life expectancy, I still have a 50/50 chance I'll run out of money before I die. So I need to plan farther out than that.

Thinking about this makes it really clear how important Social Security is. The money I've saved up could run out, but, in theory at least, I'll still get my Social Security check every month, so at least I'll have that.