Outside voices and views for advisers

How to better estimate life expectancy

Gauging how long your clients will live has major consequences for retirement planning

Feb 12, 2015 @ 11:42 am

By David Blanchett

Retirement planning is based on a significant number of assumptions. And from market movements to investor preferences to individual life spans, uncertainty reigns.

It's the job of financial advisers and other investment professionals to bring some order to the chaos. We can't predict the market, but we can help ensure that our investments have the right mix of forecast risk and return. We can measure investors' risk preferences, even as they change over time. And we can shed some light on when a person might be expected to die. It's a delicate matter, but one with major consequences on retirement planning, one in which we need to be as accurate as possible.

(More: Finding solutions to the key challenges of modern retirement)

Here are a few guidelines when estimating a life span for yourself or a client.

First, life span is personal, but the estimation tools are not. Second, conservatism rules: It's far better to die with money in the bank than to live one's later years in poverty. And third, probability is the antidote for uncertainty.

Let's take those in order.

Generic tools have value. We know from actuarial tables, for example, that people are living longer on average. For example, in 1980, the life expectancy for a 65-year-old man was 14 years; it's now closer to 18 years, according to Social Security Administration data. That means the duration of retirement is increasing.

Also, older people are dying later and fewer people are dying early — both of which raise the average life span. We expect a baby born today to live an average of 79 years, while the average 65-year-old man is expected to live to 83.


The problem, of course, is that very few people are average. If your father died at 50 and your mother lived to be 100, should you expect to live to be 75?

When estimating an individual's life span, it is important to consider personal details, such as family longevity, medical history, relevant habits (smoking, diet, exercise) and environment (stress, marital status, etc.). This is inexact, but if all these factors point to a longer life, this should inform your estimate.

It's also useful to point out that richer people tend to live longer. While not every financial planning client is a “one percenter,” recent research suggests that wealthier individuals as a group are generally well above average from a longevity perspective. This life expectancy gap for wealthier people is widening, particularly among women.

All of that argues for taking a more conservative approach to estimating life expectancy and the length of retirement.

In my research, I gravitate toward annuity mortality tables, which usually are more conservative than regular mortality tables because of adverse selection. People who buy annuities are likely to be healthier than average and therefore live longer. A mortality table I've been using recently is the 2012 Individual Annuity Mortality created by the Society of Actuaries.


These tables help make our estimates more precise, as they provide more accurate longevity probabilities than a traditional mortality table, such as the Social Security Administration mortality table.

(More: Declining marriage rates present a planning puzzle for long-term couples)

For example, the odds that either member of a couple, male and female 65-year-olds, will live past 95 is only about 20%, which makes a 30-year retirement period seem reasonable. Based on the annuity mortality table, however, this probability increases to about 43% when both spouses are 65 today, and is projected to rise to over 50% in about 15 years.

In other words, there's a 50/50 chance that either member of a couple of 50-year-olds planning to retire in 15 years will live more than 30 years after retirement. Therefore, the safety of a 30-year retirement (or assuming death at 95) varies significantly based on your assumption.

There are no easy answers when predicting retirement periods. But make it personal, stay conservative and lean on probability.

David Blanchett is head of retirement research at Morningstar Investment Management.


What do you think?

View comments

Recommended for you

Sponsored financial news

Use arjuna-design' to filter and find key information on over 1,400 fee-only registered investment advisory firms.

Rank RIAs by

Upcoming Event

Mar 13



arjuna-design is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Deputy editor Bob Hordt and senior columnist Bruce Kelly discuss the reasons for the marked shift of advisers between channels, including technology, the DOL fiduciary rule and the broker protocol.

Recommended Video


Latest news & opinion

As Finra elder-abuse rule takes effect, advisers will face awkward conversations

Regulation taking effect Monday requires reasonable effort to find trusted contact, allows brokers to stop fund disbursement.

As Trump prepares for State of the Union, 50% of advisers approve of his job performance

Percentage is 10.3 points higher than the general population approval rating.

Morgan Stanley said to be trimming 600 funds from platform

While not confirming the number of funds on the chopping block, the firm acknowledged it is culling its offerings.

As tax season gets underway, clients are looking ahead to how tax bill will affect 2018 returns

Advisers can put strategies in place now to make sure that there will be no hidden surprises this time next year.

Independent broker-dealers are stepping up their game on recruiting from the wirehouses

Independent broker-dealers have narrowed the gap between themselves and the wirehouses and are able to attract more quality brokers from the Big Four.


Hi! Glad you're here and we hope you like all the great work we do here at arjuna-design. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting arjuna-design.com? It'll help us continue to serve you.

Yes, show me how to whitelist arjuna-design.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Last News

retirement calculator t rowe price eaton vance floating rate income trust small cap index funds list michigan 529 plan review ssga target date funds best short term bond fund t rowe price health sci franklin gold and precious metals fund ira minimum withdrawal what is an insured deposit account with td ameritrade how to compute social security retirement benefits financial advice for widows tax implications of insurance proceeds strengthsfinder free test online contribute to sep ira and traditional ira 1 plaza four a jersey city nj 07311 make too much for roth ira excess social security tax withheld married filing jointly bankers life and casualty for providers cost of filing taxes with h&r block how much does a surviving spouse get from social security social security benefits for surviving children wells fargo advisors st louis headquarters interest rate on cds wells fargo when did the dotcom bubble burst filing for social security spousal benefits collecting social security from divorced spouse lockheed martin corporation master retirement trust beneficiary ira tax rules wasatch small cap growth fund fidelity canadian growth company fund university of alaska 529 flexible retirement planner review annuities vs life insurance dow jones industrial average annual returns turbotax free or deluxe rollover traditional ira to 401k stable value investment association