Life Expectancy, Retirement, and Your Investment Time Horizon

In thinking about how much money you need for retirement, you need to consider both your age at retirement and how long you can reasonably expect to live. The earlier you retire or the longer you expect to live, the more you’ll need to ensure a comfortable retirement, so… Just how long do you expect to live?

A brief history of life expectancy

Back in 1900, a newborn in the United States could be expected to live 47.3 years. In 1950, that number had risen to 69.7 years, and by the year 2000, it was 76.8 years. According to the most recent CDC estimates, which are based on data from 2007, life expectancy in the United States currently stands at 77.9 years.

As a side note, this increase in life expectancy is one of the reasons that many pension plans and Social Security have been struggling to make ends meet. In fact, Americans are living nearly twice as long in retirement as they did back in the late 1960s.

The above estimates, of course, are based on broad averages so they’re not all that accurate for any particular individual or situation. Moreover, they’re for newborns, so they don’t account for the fact that you’ve already survived for (say) 40 years, and thus are likely to live somewhat longer than average. What we need, then, is a tool for personalizing the prediction.

Personalizing the prediction

Guess what? I’ve found a great calculator for doing just that. It was put together by researchers at the Wharton School of Business at UPenn. It was actually created with life insurance in mind, but it works equally for getting a better handle on how long you might expect to live in retirement.

It’s pretty detailed, so it takes a few minutes to run through it, but it’s well worth the time. Here’s the link (or click the graphic, below). And here are my results:

Obviously, you can’t put too much stock in a point estimate like this, but it’s definitely informative.

Assuming that I retire at the traditional age of 65, I can expect to live roughly 23 years in retirement though, based on the lower and upper quartile estimates, it could be as short as 15 years or as long as 33 years. If I retire earlier, I’ll have an even longer post-retirement existence.

The takeaway

An important takeaway here is that retirement isn’t the finish line. Not only does your expected time in retirement govern how much money you’ll need to make it through to the end, but it also influences how aggressively you should be investing.

The general consensus is that you should invest more conservatively as you get closer to retirement. This makes good sense, as your time horizon will be getting shorter and shorter as time wears on. That being said, shorter does not necessarily equal short. Even once you’ve reached retirement age, you may have another 20-30 years (or more) to go before the bitter end.

In short, while you may not have time to recover from a stock market drubbing as you approach (or enter) retirement, you also have to be careful not to ratchet things back too far. After all, you can’t afford to get too conservative unless you’re sitting on an enormous pile of cash.

Anyway… I’m mostly just musing here. But I am curious to hear about your results. What’s your life expectancy? And, given when you expect to retire, how long will you be living off your portfolio?

Published on July 6th, 2011
Modified on July 12th, 2011 - 13 Comments
Filed under: Retirement, Saving & Investing

About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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13 Responses to “Life Expectancy, Retirement, and Your Investment Time Horizon”

1. 1
   John Says:
   July 6th, 2011 at 7:59 am

   Life Expectancy Results
   Life Expectancy: 72.68
   Lower Quartile : 63.24
   Median Lifetime: 74.77
   Upper Quartile : 83.45

   I am a 30 year old diabetic which probably accounts for the bulk of the difference between myself and Nickel. I guess that means I need to retire by age 55 or 60

2. 2
   BG Says:
   July 6th, 2011 at 9:54 am

   Good thing I do all the driving. If the primary driver was female, it would take 21.9 days off my life (on average).

   EDIT: oops, I misread — actually it would add 21.9 days to my life if a female was the primary driver…

3. 3
   Carol Says:
   July 6th, 2011 at 11:51 am

   Life Expectancy: 83.70
   Lower Quartile : 76.77
   Median Lifetime: 85.64
   Upper Quartile : 92.23

   Not too bad, certainly room for improvement. Hoping to retire between 55 (for early retirement, I am already fully vested and have 25 years in) and 58 (when I’ll be at reg retirement with 35 years in) Only issue, which is a big one, is medical coverage. I’ll be under medicare later on but it’s the years until 65 that I’ll need coverage.

4. 4
   Nickel Says:
   July 6th, 2011 at 12:39 pm

   Carol: Yes, health insurance is a huge issue if you retire early.

5. 5
   Courtney Says:
   July 6th, 2011 at 2:07 pm

   Life Expectancy: 90.68
   Lower Quartile : 84.16
   Median Lifetime: 92.99
   Upper Quartile : 100.10

   All of my non-living parents/grandparents have died of lifestyle-related diseases (in which I do not partake). We don’t really have any hereditary factors in my family. I’ve always said I’d probably just get hit by a bus trying to cross the street in my walker one day.

6. 6
   Mike Piper Says:
   July 6th, 2011 at 2:18 pm

   Apparently I’d live 1.06 years longer if I ate meat. Regardless of whether or not I buy that, I’ll pass.

   With no kids or plans for them, I anticipate annuitizing a good part of our portfolio, so longevity is somewhat less of a concern for me than for others.

7. 7
   jim Says:
   July 6th, 2011 at 6:53 pm

   “Americans are living nearly twice as long in retirement as they did back in the late 1960s.”

   The life expectancy at birth has gone up about 8 years from 69 to 77 since the 1960’s. However the life expectancy at age 65 has only gone up 4 years from 14.4 to 18.5. So the overall life expectancy for all ages starting at birth has gone up a lot more. But once you hit 65 the life expectancy at that point has only gone up half as much. When you planning for retirement the life expectancy starting at retirement age is the number that you should look at.

8. 8
   Nickel Says:
   July 6th, 2011 at 9:29 pm

   Jim: I based that statement on an article I read awhile back, but couldn’t find the link while writing this. Your comment prompted me to go back and dig it up. Here it is, from The Economist:

   http://www.economist.com/node/15573043

   Based on the graph, they estimated a little under 10 years of post-retirement living (using an official retirement age of 66) in the late 1960s, and around 17-18 years in the early 2000s using data from the OECD.

   I’m honestly not sure if they used expectancy at retirement age (which, as you point out, is the correct way) or if they did something else. Either way, the point about longer life expectancies placing a burden on retirement systems still stands, though.

9. 9
   jim Says:
   July 6th, 2011 at 10:57 pm

   Sorry I wrongly assumed you were looking at total life expectancy rather than the life expectancy at retirement, my bad. And even if you were the point still remains the same as you say: people are living longer.

   I got the #’s from the CDC :
   http://www.cdc.gov/nchs/data/n.....r58_21.pdf

   The Economist article was citing figures for Men specifically. Men don’t live quite as long so that makes the difference a little more. But the CDC still says life expectancy in 1960 was about 13 years for men as opposed to 17 by 2006.

   Hard to say why the Economist and the CDC dont’ have the same #’s. They are starting at age 66 and I’m starting at 65 but that shouldn’t make more than 1 year difference. *shrug*

10. 10
    brooklyn money Says:
    July 7th, 2011 at 1:10 pm

    This is depressing. Mine is super high. Like in the 90s for the expected age. Which seems about right. My grandmother is pushing 93 now. My male relatives have died of lung cancer from smoking. I smoked for 10 years and quit 6 years ago — will never go back. So I will probably have a very long life. Which is terrifying to think of financing.

11. 11
    Mike B. Says:
    July 7th, 2011 at 4:46 pm

    Supposedly, I\\\’d live an extra 5.5 months if my wife and I stopped having sex. Not worth it.

12. 12
    YOY Says:
    July 13th, 2011 at 10:32 am

    too soon old, too late smart

13. 13
    Kevin@RothIRA Says:
    August 25th, 2011 at 8:29 pm

    That time horizon should be a call to be more aggressive about saving money for retirement. But it may also suggest that the concept of complete retirement needs to be re-examined. It will be very difficult to finance a 30 year retirement in a 40 year working life.

    Some consideration of continued employment/self-employment into retirement, as well as continued accumulation of retirement assets after retirement need to be considered. (Roth IRA’s will allow you to continue to build retirement assets even after age 70 1/2 when other plans require distributions to begin).

    It may be that we should be mapping out a two tiered retirement. Early retirement, say 65 to 70 or 75, when we continue working at least part time and building up retirement assets, then 70 or 75 and after when we begin drawing down assets. It’ll be a matter of preserving assets for three decades.