Realistic Retirement Planning Series: Counting the Years
April 12, 2019—As we discussed in my last article, there are three crucial calculations informing your retirement planning: spending, income, and years in retirement. Today, let’s talk about that last one. While you may dream of a long, golden retirement, there are a couple obvious considerations that go with your happily-ever-after ideal. Obviously …
- The longer you’re in retirement, the more you’ll need to have saved for it.
- The best we can do is guess at how long your retirement might be.
There’s also one more point that’s not nearly as obvious, but just as important: Most people underestimate how many retirement years they should plan for.
Most of us really should plan for living past our average life expectancy. If half of us will live to age 85, for example, you’ll probably want to plan for being in the other half who make it past that age. If you’re right, you’ll be glad you prepared for it, with maybe a bit to spare for your heirs. If you’re wrong – if you beat the odds but you didn’t plan for it financially – well, you’ll sorely wish you had.
So what are the odds? Based on a report from the Joint American Academy of Actuaries/Society of Actuaries, for non-smokers:
- If you’re a 65-year-old man: You’ve got a 50% chance of reaching age 87, and a 20% chance of living to age 94.
- If you’re a 65-year-old woman: You’ve got a 50% chance of reaching age 89 and a 20% chance of living to age 96.
- If you’re a 65-year-old couple: It’s even more likely at least one of you will beat the odds. You’ve got a 50% chance one of you will reach age 92, a 20% chance one of you will reach age 98, and a 10% chance one of you will live to be 100.
According to the U.S. Census Bureau, 63 is our average retirement age. That means most Americans should plan for at least 25-30 years in retirement. (Unless you’re a smoker, in which case statistics suggest you can expect about 7-8 fewer years.) Either way, how do you plan for that? Plan to read my next article to find out more.
Written by John A. Frisch, CPA/PFS, CFP®, AIF®, PPC®