Why Average Life Expectancy Is Deceptive
When I start working on a financial plan, I sometimes joke “And when would you like to die?” It’s a bad joke that rarely gets a sympathy laugh. But when we’re planning for a lifetime, we have to make an educated guess on when that life might end. I often get pushback when I suggest as late as age 90 or 95. That pushback is fair given that the average life expectancy is about 79, 10-15 years less than I would typically ever plan for. But average life expectancy can be deceiving.
Take last year as an example. Tragically, over half a million people lost their lives last year to Covid-19 in the US. And not surprisingly, the average life expectancy dropped from 79 to 78.
However, if you are alive and healthy, that drop in life expectancy is essentially irrelevant. The same is true for other tragic and premature deaths like car accidents, heart attacks, and a multitude of other serious diseases that unfortunately bring the average life expectancy down. The fact is, if you’re alive and healthy today, you are considered above average and should plan accordingly. In fact, if you are 60 years old and don’t smoke, on average there is a 50% chance you will live to your late 80’s, and if you are married there is a 50% chance one of you lives to your mid-90’s![1]
And this doesn’t even include the fact that all of these averages are steadily increasing year after year (with the exception of the pandemic last year). The average lifespan has increased since 1970 from about 72 to 79.[2] And the US Census expects it to steadily grow to about 85 by 2050.
To reflect this reality in your retirement plan, it requires a little more sacrifice today - saving more or spending less. Do I think you need to plan to live to 104 like the woman you saw on the news drinking three doctor peppers a day? No. As with all planning, we want to find a balance between making sacrifices for the future and enjoying the present.
Thank you for reading,
Alex
This blog post is not advice. Please read disclaimers.
1 - 2012 IAM Basic Tables
2 - Medina, Lauren, et al. Living Longer: Historical and Projected Life Expectancy in the United States, 1960 to 2060. 20 Feb. 2020, www.census.gov/content/dam/Census/library/publications/2020/demo/p25-1145.pdf.