Issue time 9:07 am, by CTreit
Category:Retirement_Calculator
Your life expectancy is never zero
July 15th, 2010This is the fourth post in a series on “obvious and hidden financial risks.” (To read the other posts, please go to “market risk”, “reaching financial goals risk”, and “purchasing power risk”.)
We mentioned one risk in the list of financial risk that is really not a financial risk in the narrow sense, but it does have tremendous financial consequences. We are talking about longevity risk.
As if life and finance were not complicated enough already, there is an important risk that comes into play when you consider one of the most important plans you must make for your future: your retirement plan. Over the last few decades medical advancements and great improvements in knowledge about self-care (like the risk of smoking, or failing to eat well and get sufficient exercise) have allowed us to live longer than ever before.
When you plan for retirement it is important to take into consideration the risk that you may live longer than expected (also known as “longevity risk”). Many people do not expect to live as long as they actually will, and that might keep you from planning well. But you do not want to run out of money in the last few years of a long life.
Unfortunately, it is very difficult to assess longevity risk and account for it properly. There are a number of websites on the internet that have calculators that can help you figure out your life expectancy. They assess how your lifestyle and medical history may impact your life expectancy, and adjust the estimated years left to your life, accordingly. Perhaps these sites can help you make more informed decisions about your plans to retire. Check out the links below to see what offerings are out there to help you better assess your longevity risk.
Another interesting thing about longevity and your life expectancy is the fact that it is never even close to zero. For example, an 80-year old male has a life expectancy of almost 7 years. His 80-year old wife can expect to live for another 9 years! I suppose these calculations reflect the idea that when you have made it this far, you have a good chance of making it even a bit further.
Longevity risk is one of the few risks that you’d probably not want to avoid! Who wants to purposely shorten their lifespan? In the contrary, we humans have spent a lot of effort to increase longevity risk and I am happy with that. I just hope that we do what we can to make adequate provisions for a (surprisingly) long life and don’t forget to enjoy every precious minute of it.
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http://gosset.wharton.upenn.edu/mortality/perl/CalcForm.html
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You can find weekly lists of great blog posts written by personal finance bloggers at the Carnival of Personal Finance. We are happy to report that our post Obvious and Hidden Financial Risks was published in the Carnival of Personal Finance hosted by Funny about Money.
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