What’s the hardest thing about planning for retirement?
As Steve McDonald explains in this week’s Two-Minute Retirement Solution, it isn’t saving money. It’s trying to figure out the unknown… like how long you’ll live. And, for planning purposes, Steve’s found a life expectancy calculator that is a cut above the rest.
Transcript:
The toughest part of retirement planning isn’t saving, it’s trying to guesstimate how long you’ll live. Or, maybe a better way of putting it, planning to not run out of money.
If you live a lot longer than you’ve planned, there is a very good chance you’ll run out of money, and that’s going to stink! Trust me!
If you haven’t yet tackled this problem, believe me, it’s a tough one. And the available tools that are out there aren’t much help.
Depending on the calculator that I use, I get a life expectancy of anywhere from 79 to 92. Now, either of those works for me, but what if they’re off on the high end? What if I plan on 92 and I live to 95? That’s a problem.
Most life expectancy calculators use either birth-based estimates or life insurance numbers to give you their best guesses.
The birth-based numbers include deaths in childhood and our teenage years. That’s why you’ll hear it often said that if you make it to 65, you can expect to live a lot longer, because all of those other possibilities are gone.
Since we survived most of the causes of death in our early years, this number is usually too low.
The life insurance numbers – these are used more frequently – always hedge to the high side so the insurance company has plenty of reserves to cover any claims.
But a guy named Yanikoski has come up with a calculator that makes more sense. It isn’t perfect, as you’ll see, but, for planning purposes, I think it is a cut above the rest. The link to access it is listed in the text of this video. I would definitely take a look at this: Click here to view Life Expectancy Calculator.
It doesn’t try to pinpoint a certain age, but figures the probability of reaching certain ages. In my case, that went up to 102 years old.
Oh, please don’t let me live that long. I know I can afford it, but it’s just too long to live.
[promo_box]
income source that The Oxford Club’s Chief Income Strategist Marc Lichtenfeld has been looking into.[/promo_box]
But anyway, my chart from this tool is on the screen now and, as you can see, I have about a 50% chance of making it to 85, a 10% chance of hitting 94.8 and almost no chance of hitting the mid to high 90s to 100.
I’m shooting for high 80s to low 90s. That’s more than enough for me.
As I said, it isn’t perfect, but it beats a range of 79 to 92.
Oh, if you want to skip to the probability thing, the best guesstimate I have seen from planners for a one-size-fits-all age for planning? 95. Here’s why.
There is a 5% chance that most of us, boomers who don’t smoke, will make it that far. An outside chance, I know, but another outside chance was passing into traffic at the goal line in the Super Bowl. But they did that, too.
Oh, by the way, I have to laugh when I work on my own life expectancy, because there were a lot of folks out there, mostly my teachers, who bet I’d never get out of high school alive. So I guess I’m beating all the odds.
That’s it. Take a look at that tool. I think it’s pretty good.
Click here to view Life Expectancy Calculator