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But the numbers are also the most elusive, and no one knows how long they will live.
“No one really knows, and that uncertainty is unsettling,” said Lisa Schilling, director of practice research at the Institute of Actuaries, the research arm of the Institute of Actuaries.
According to research from HealthView Services, a provider of medical cost forecasting software, 95 is typically the default age assumption in the financial industry.
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The Society of Actuaries and the American Society of Actuaries place emphasis on longevity rather than targeting a single life expectancy..
Longevity risk measures the likelihood that a person will live longer than expected and run out of savings.
“If you read that the average life expectancy is 84 and you’re assuming your money will last you until 84, there’s a big surprise behind the curtain that’s still uncovered,” Schilling says. “It’s very likely that for a variety of reasons your money will need to last longer than that.”
The Society of Actuaries and the American Society of Actuaries recently launched a free online Long-lived illustrator.
The tool asks basic information about individuals or couples, such as age, sex, retirement age, smoking status, and general health (poor, fair, excellent).
The results, the groups said, are intended to provide a “reasonable” estimate of how long people will live. The chart shows the probability of living to a particular age and how many years you’re likely to live after retirement.
Generally, the older you are now, the longer you’re likely to live. While your life expectancy at birth may be 84, if you’ve already lived to 65, you’re likely to live even longer, says Schilling.
The results could help individuals fully understand the range of possibilities when planning how long they need to hold onto their money, she said.
Another finding that often comes as a surprise to couples is that “the chances of at least one of you living to age 90 are even higher,” Schilling says.
But a recent study from HealthView Services suggests that the financial industry may be naive to assume it will live to 95.
For someone currently 65 years old and free of chronic disease, the expected life expectancy is 90 years for women and 88 years for men.
However, studies have shown that only about 5% of people over 60 are free of chronic diseases.
Chronic health conditions such as high blood pressure, cardiovascular disease, cancer, diabetes, high cholesterol, smoking, obesity and Parkinson’s disease reduce an individual’s expected life expectancy.
For example, the study says that a healthy 65-year-old man with no chronic diseases has a 19.3% chance of living to age 95 or older, but this drops to 17.5% if he has high blood pressure, 15.8% if he has cardiovascular disease, 12.5% if he has high cholesterol, 8.8% if he is obese with a BMI of 35-39, 7.4% if he smokes, 2% if he is obese with a BMI of 40-44, and just 0.4% if he has diabetes.
These probabilities could make a big difference in his retirement financial needs. According to HealthView Services, a healthy 65-year-old man earning $100,000 a year in 2023 would need about $1.1 million to maintain a required replacement rate of 80%. This assumes he lives to age 95, has a 6% annual return on his portfolio, receives Social Security benefits, and has a 3% inflation rate.
But if that 65-year-old man has a chronic condition, his life expectancy will be reduced — and that could free up more of his retirement savings for other purposes, according to HealthView.
High blood pressure could shorten his lifespan by nine years to age 86, freeing up $447,469 for long-term care planning, emergency savings, funds for heirs and other uses, the study found.
The study found that smoking reduces life expectancy by 13 years to 82 years, potentially saving $616,245, while diabetes reduces life expectancy by 16 years, potentially saving $727,947.
Most experts advise individuals to make a plan to survive until they deplete their assets by delaying taking Social Security benefits or considering an annuity to boost their monthly income.
But taking into account an individual’s specific health status and how it affects life expectancy can help personalize financial planning, according to Ron Mastrogiovanni, CEO of HealthView Services.
“When the numbers are personalized in the planning process, people are more likely to take action,” Mastrogiovanni says.
There’s no need to completely rule out the 95-year age assumption, he said.
But letting us know someone’s personal life expectancy can help give you a more reasonable sense of what age to plan for.
“It doesn’t mean picking that number to plan for,” Mastrogiovanni said.
“If it makes you comfortable, you can do it in four years or 10 years,” he said.
“But at least you’re working with basic actuarial numbers.”
