No one likes to think about death, but when you are trying to plan retirement you have to sort of guess at when you’re going to die. The average lifespan of a woman is 79 years versus a man’s 73 years. Yet, somehow, we all think we’re going to live forever. We know we aren’t supposed to retire until the full retirement age of 67, for the most part (depending on when you are born), yet many of us might be forced into early retirement due to illness or job loss. How long you live is influenced by lifestyle choices but good genes have also been implicated in people who live well past their 80’s. Retiring at 67, we would still expect at least 13 years to reach our 80’s, yet most plans use a longer time frame now.
Why It’s Good To Plan The Long View
Despite the average lifespan, many retirement planners are urging their clients to estimate their death at 90 or 95 years of age when planning their retirement. That’s a difference of 10 to 15 years! The idea is that it is better to have sufficient funds in your account, in case you do beat the odds, and if not your beneficiaries can end up with whatever is left over. Another reason it might be better to start with this assumption is that you might end up retiring early through illness or job loss, significantly cutting the nest egg you might have otherwise had. So, if you start with the assumption you will live longer, you will save more automatically.
Do You Really Want To Know When You’ll Die?
In my family, living to be 85 is pretty common. For me, it might make sense to plan for a longer lifespan since good genes play a critical role. Lifestyle choices like smoking can also affect how long your odds are for a long life. Your body mass index, BMI, will also play a key role in your health. These are things we have total control over and can help us survive health issues in later years that might prove fatal to someone else. This interesting death clock calculator shows the impact of some behaviors on your potential lifespan.
The impact that our final death date has on our retirement benefits can’t be understated. This article states that if you save $500,000 in an IRA and only estimate 20 years of withdrawals, you will end up with an annual disbursement of about $43,590. If you have to plan for 30 years of withdrawals after you start disbursing monies, you will only be able to access approximately $36,320 a year. That’s a difference of $7,270 a year!
Good Health Is A Good Retirement Investment Strategy
Even counting all this, the biggest expense you can possibly have in retirement will be health costs. Some people might suggest that if you have a low life expectancy in your family that you shouldn’t estimate a longer lifespan, but this will keep you from saving up early and more when you are completely able to make that investment. It is also true that keeping healthy will add years to your retirement planning, but poor health can add much more significant costs than $7,270 a year, from loss of potential income and additional health expenses, with less enjoyment of your retirement too. It definitely pays to put away the cigarettes and watch the diet as we get older.
*Image courtesy of Flickr Creative Commons license by Chris(UK)