Your life expectancy changes as you grow older.
Knowing your life expectancy can help you make informed decisions about retirement in general, and social security benefits in particular. Many people underestimate their life expectancy because they don’t realize it changes as they grow older.
Basic Life Expectancy
We sometimes hear statistics about what might be called basic life expectancy. This is simply the average age at which people die. Find the ages of all the people who died in a relevant period, add them together and divide by the number of people, and you have life expectancy. The actual process is more complex, but that is the basic idea.
Life Expectancy at a Later Age
Your life expectancy changes as you grow older because the formula leaves out the people who died at ages younger than your current age. For example, if we’re trying to determine your life expectancy at a time when you’re 60 years old, we don’t average in the numbers for people who died before reaching age 60. At this point we’re asking what is the average number of years people live beyond age 60, once they’ve reached that age. That’s a higher number than the average for all people, because we’re eliminating people who died when they were younger. For example, in one analysis used by the Social Security Administration, male life expectancy at birth was about 74 years, but a 60-year-old male would be expected to live past his 80th birthday.
At age 50 you haven’t gained much ground in the life expectancy sweepstakes. The average date of death for people who reach that age isn’t much later than for all people in general, because it’s a small minority of people who die before that age. As you move into later years, you gain ground more rapidly, because you’re surviving past years when a larger number of people died. At age 65, a male is expected to survive almost 17 more years, to about age 82, and a female almost 20 more years, to about age 85.
Some people are surprised by these numbers. All their lives they heard about life expectancies somewhere in the 70’s, so at age 65 they figure the odds of living another decade aren’t very good. In reality, at age 65 the average male can expect to survive past his 80th birthday, and the average female even longer.
The takeaway. It can be a big mistake to plan your retirement around the idea that you’re going to die in your 70’s.
You Aren’t Average
You aren’t the average person, of course, and you can’t count on living as long as the tables say, no matter what your current age. The tables are based on the broad population, including smokers and non-smokers, marathoners and couch potatoes, and people with all sorts of good and bad indications for longevity. You may get a more realistic picture if you adjust what you read in the tables based on knowledge of your own factors.
Playing the Odds
In any event, you have to allow for good or bad luck. Some people plan to run out of money when they die, but forget to die on schedule. Make sure your needs will be covered even if you live longer than you might expect based on the life expectancy tables and your own health factors.
You don’t know how long you’re going to live, of course, but it may help to know the average life expectancy of people your age. You can find that in this table on the web site of the Social Security Administration. The numbers there tell us that the average person does better by waiting until full retirement age. For example, a 63-year-old male has a life expectancy of 17.25 years. If a man with a full retirement age of 66 begins his benefit at age 63, he can expect (on average) to live 27 months (two and one-fourth years) past the break-even point, when the later benefit catches up with the earlier benefit. His twin (the one who waits until full retirement age to begin benefits) comes out better. For a woman, the difference is greater. Her life expectancy at age 63 is about 20.5 years, giving her 66 months (five and one-half years) after the break-even point.
For the average person, the choice to start receiving retirement benefits early will ultimately mean receiving a smaller total lifetime benefit. If you have reason to believe your personal life expectancy is shorter than average, you may come out better by starting your benefit early, especially if you’re a male. People with average or better life expectancy, especially females, should think twice about starting the benefit early. You may still want to make that choice for other reasons, such as having money to travel while you’re young enough to enjoy it, but the long-term consequences of that decision won’t be favorable if you live far beyond the break-even point.