How to Figure Your Life Expectancy and Make a Plan to Not to Run Out of Money

If you’re using life expectancy calculations to plan your retirement budget, you could run out of money.

Imagine a married couple, both 63 years old, planning to retire at the age of 65. You’ve saved enough money for a 25-year retirement. According to the Social Security Agency’s actuarial mortality table, the man can expect to live another 18 years after retirement, while the woman can expect to live almost 21 years. It sounds like they’ve saved a lot.

What are the chances of any of them surviving their 25 years of saving? More than 60% according to this calculator from the American Academy of Actuaries and Society of Actuaries. The calculator uses the same social security data with some basic health questions mixed in.

Looking at averages isn’t a foolproof way to determine how long you’re likely to live. People die at different ages over a period of decades. According to the actuaries’ calculator, a 65-year-old man in excellent health who does not smoke has a 95% chance of living to 70, a 79% chance of living to 80, a 43% chance of living to 90 , and an 8% chance of 100.

“It’s a challenge,” says Richard Faw, a Philadelphia-based financial advisor and actuary. “We have never created a financial plan based on life expectancy.”

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For married couples, the math gets even more daunting. If this 65-year-old man is married to a 65-year-old non-smoker with identical health conditions, there is a 10 percent chance that one of them will live to be 103.

“These retirement periods are much longer than planned,” says Linda K. Stone, senior pension fellow at the American Academy of Actuaries. Complicating things further, it’s common for a spouse to live 10 or 15 years after the first spouse dies, she notes.

Lifespan variability poses a major challenge to financial planning. Overspend and you will run out of money long before you die. Underspend and unnecessarily cut short your golden years.

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But there are steps you can take to ensure you have enough money no matter how long you live. This includes using an actuarial calculator to get a more realistic estimate of your likely lifespan and establishing a base of regular income from Social Security, pensions, annuities and other secure sources to cover essential expenses. Once you’ve taken these two important steps, you’ll have a lot more flexibility in what you do with the rest of your money.

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Here’s a guide on how to plan for longevity properly.

Take your calculations one step further

Start with this longevity calculator from actuaries. It asks for five pieces of information: date of birth; Gender; retirement age; whether you smoke; and whether you rate your general health as poor, average, or excellent. “We tried to keep this simple with the factors that make the biggest difference,” says Stone of the Academy of Actuaries.

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Smoking obviously has a major impact on your lifespan. A 70-year-old smoker in average health has a 50 percent chance of living another 12 years. If she doesn’t smoke, her life expectancy increases to 18 years.

Overall health is another key. Consider the 70-year-old non-smoker. If she rates her health as poor, she has a 50 percent chance of living 16 years; if she rates it as excellent, it increases to 20 years.

How well do we know our own health? “People have a better sense of their health than of their longevity,” said David Blanchett, director of pensions research for Prudential Financial’s PGIM unit.

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Instead of a single life expectancy number, the calculator gives you probabilities at different ages. Unless you’re overly concerned about surviving your money, use the age at which the calculator says you have a 25 percent chance of staying alive, says finance author Wade Pfau, who wrote Guide to retirement planning. To be even more careful, choose the age when you have a 10 percent chance of being alive, adds Pfau.

Make a plan to cover essential expenses

The first step is to wait as long as possible to claim Social Security, the only current major pension that is adjusted for inflation. Your monthly benefit will increase by at least 76% if you bill at 70 instead of 62.

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If Social Security and any other pensions you receive are enough to cover essential expenses like housing, food, and health care expenses—get tips on how to do that here—then you’re all set. If not, there are other steps you can take to increase your secure income.

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One option is to purchase a lifetime income annuity. Currently, annuities for a 70-year-old man have annual payouts of up to 8.42% from a top-tier insurer, according to, a website that sells annuities from various insurers. Fees are fairly low on these simple annuities, although commissions and surrender fees can be significant on other more complex annuities, so be sure to understand what you’re buying.

Another option is to create a ladder of Treasury Inflation-Linked Securities, or TIPS, to cover your retirement. Rising real interest rates have made TIPS more attractive. If you invest $1 million in a series of TIPS that mature over the next 30 years, you could get around $41,600 annually, adjusted for inflation, Pfau calculates.

The advantage of a ladder is that you stay in control of your money. If in two years you decide to give your money to charity and join a monastery, you can do so with a bond ladder. You can’t do it with an income annuity. On the other hand, the pension will continue to be paid even if your retirement lasts longer than 30 years.

Be flexible with your spending

The 4 percent rule, developed by consultant William Bengen in the 1990s, states that a retiree can safely withdraw that percentage each year from a portfolio of stocks and bonds for 30 years, adjusted annually for inflation. There remains a practical rule of thumb for evaluating the feasibility of your drawdown strategy.

But if you’re more flexible, you can withdraw more than 4% from a portfolio of stocks and bonds during good-return times, and you’ll never run out of cash, even if your retirement lasts longer than 30 years.

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The simplest approach is to use the table the government has for minimum distribution requirements from tax-advantaged accounts. For a 73 year old, the RMD is 3.77% of wealth. Each year the percentage required increases as life expectancy decreases. By age 90, your RMD will be 8.2%

The RMD approach automatically adjusts to falling markets. If your portfolio fell 15% last year, your RMD will fall almost 15%.

That means your discretionary spending will decrease in falling markets, and you need to be prepared for that. That Naples Italy vacation can turn into a Naples Florida vacation, but you’ll find some great restaurants in Florida too.

Many financial experts consider RMD percentages to be overly conservative. Pfau recommends multiplying all percentages by about 1.5. This has the effect of allowing more spending early in retirement and less later in retirement when spending is already trending down. Even with this adjustment, you will not run out of money.

Make adjustments on the go

You may think that your chances of reaching 95 are slim, but by the time you reach 90, they’re actually good.

If you end up living longer than planned, you may choose to cut back on your discretionary spending. Another option is to buy a lifetime annuity to avoid running out of money. Because of your age, you get an amazing payout.

A 90-year-old paying $100,000 for an annuity could currently receive a 21.46% payout from an insurance company with a prime credit rating. If the pensioner dies in the next two or three years, the insurer takes the lead. But suppose the retiree lives on for another decade. He would be getting $21,460 a year out of retirement, and he wouldn’t have to worry about running out of money.

Another approach is to keep an emergency fund that you don’t tap into until you’ve spent all your money. Susan Elser, a financial adviser in Indianapolis, says many of her clients have tax-exempt Roth IRAs. Because this is the most tax-efficient vehicle, they’re typically the best way to leave children wealth. But when their clients run out of money in retirement, they can crack Roth IRAs.

“The longer you live, the better your Roth IRA looks,” she says.

Write to Neal Templin at [email protected]

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