Plan for a Long Life When Saving for Retirement

If we knew we would die tomorrow, we’d be rich today. I don’t mean rich in appreciation for life, although that’s probably true, too. I mean literally rich. With only one day to live, a nest egg of $100,000 would be enough to take a trip around the world (at lightning speed), buy a Tesla or live in the lap of luxury—for that one day.

But barring a crystal ball, we can’t know how much time we have left on this planet. Meanwhile, the major retirement decisions—-how much to save, how long to work, when to take Social Security and how much to withdraw each year from retirement accounts—-hinge on how many years you can reasonably expect to be around.

We’re not operating completely in the dark. Research shows that women live longer than men (the average life expectancy for a 65-year-old woman is 85.5; for a 65-year-old man, it’s 82.9). College graduates live longer than people with only a high school degree. High earners live longer than low-wage earners. Whites live longer than African-Americans. Those numbers apply to the general population, not to each of us individually, but they do indicate where we stand in the longevity lineup.

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Health habits, family history and response to stress can also affect longevity. Calculators such as Living to 100 and the Vitality Compass at Bluezones.com calculate life expectancy based on how you answer questions ranging from how much you weigh and how long your grandmother lived to how often you chow down at Mickey D’s.

Make Your Money Last

Such calculators are a handy way to identify what you’re doing that promotes longevity, as well as what you’re doing that could cost you years. But they’re not just a health lesson in disguise. Most people underestimate their life expectancy, assuming they will die at the same age as their longest-living parent or oldest relative, even if their own circumstances are vastly different, says Carol Bogosian, of the Society of Actuaries’ Committee on Post Retirement Needs and Risks. Lowballing life expectancy can also mean lowballing the amount you’ll need for a comfortable retirement. “It’s critical to make sure you have the finances to fund the longest life, not the shortest,” says Bogosian.

If the calculators put you at 95, that’s reason to work longer and delay taking Social Security. (For each year you delay after full retirement age until age 70, you get an 8% bump in benefits; see Best Strategies to Boost Your Social Security Benefits.) It also means you should take an annuity instead of a lump sum if you have a defined-benefit pension plan and are given the choice. “Plan for sources of retirement income that last as long as you do,” says Steve Vernon, an actuary and research scholar at the Stanford Center on Longevity, at Stanford University.

Another strategy is to buy an annuity, which delivers a guaranteed payment until you die. Of the choices, a fixed immediate annuity is the most straightforward. But at today’s interest rates, the payout is modest: A 65-year-old man paying a single premium of $100,000 would get about $550 a month, according to ImmediateAnnuities.com.

For a bigger payout, consider a deferred-income annuity (also known as longevity insurance). You pay for it up front and delay taking the income for, say, 20 years. In that scenario, $100,000 set aside by a 65-year-old man would generate a hefty $3,136 a month at age 85. (With some policies, you can add a rider that pays a benefit to your heirs if you die before you hit the magic number.) A deferred-income annuity can involve complicated decisions, including how much of your savings to use and how much of the remainder you’ll draw down before your payouts begin. Get expert advice before you buy one.