Life Expectancy

There is a bizarre relationship between life expectancy and financial planning: we all want to live longer, but living longer requires more money. Medical professionals can generalize about how long you might live. There are predictors like genetics, family history, illness and fitness. But no one can really pinpoint your life expectancy.

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Because of this uncertainty, a prudent planner will make arrangements that will fit any of these three possibilities:

  • Live longer-than-expected:

    Happily, the worst financial scenario is the best overall scenario. If you've planned for a longer-than-expected life, you will be prepared to live your later years without financial worry.
  • Live to expected age:

    If you engaged in retirement planning with a longer-than-expected lifespan in mind, you will leave some portion of your retirement savings to your beneficiaries. Of course, you should ensure that all paperwork is updated and accurate at all times so that your family can easily access these funds. You need not worry about your financial status or that of your family.
  • Live shorter-than-expected:

    Unfortunately, there are events we cannot foresee or prevent. If you live to retirement but die far earlier than expected, your beneficiaries will receive more money than expected from your retirement accounts. If you have not yet attained retirement age, you can consider purchasing life insurance that will help your spouse and/or children to maintain their lifestyle if you die unexpectedly.

You should plan as if you will live longer than expected.

Choose the oldest age you can possibly fathom achieving, and then add a couple years onto that. Use that number to establish how much money you need to save – probably this will require that you save a lot of money in retirement plans. Visit our Retirement Guidance calculator to determine your savings goal, and make your plans with the “worst” scenario in mind.

Additionally, tailor your investment strategy to be age-appropriate: investments should be progressively more conservative as you approach retirement. Once you retire, it will be important to have a portion of your account invested in stocks to help keep ahead of inflation, but a significant portion of your retirement account should be invested in money markets, conservative bonds and other safe securities.