Of all the questions when planning for retirement, two are crucial: How long will you live? And how healthy will you be? Estimating the answers to these questions will help you decide how to prepare for retirement.
Your lifespan determines how much you should save for retirement and how much you can spend once retired. It can also affect how you decide to take Social Security benefits (sooner or later), whether you buy or forgo annuities, and if you choose to obtain long-term care insurance.
Most people rely on wild guesses to determine how long they will live. In one survey by AIG Life & Retirement, more than half of people surveyed said they plan to live to 100 (an unrealistic expectation). The standard life expectancy for a 65-year-old woman today is 83, according to the Social Security Administration.
But what if you’re very healthy and you have a family history of longevity? Some calculators, such as the American Academy of Actuaries’ Longevity Illustrator atLongevity Illustrator, give you an assessment of the probability of living to different ages based on your age and health.
But life expectancy is just a part of longevity. Another important side of the equation is the number of years you have left in relatively good health. To answer this nuanced question, new technologies – from saliva-based tests to facial analysis software – offer some guidance.
Fundamentally, though, we just can’t know for sure. The healthiest among us could face a fatal car accident tomorrow. This uncertainty makes it important for would-be retirees to consider all possible scenarios when developing a financial plan.