The US government is very concerned with your longevity. Not that they really care about you personally, but the vast majority of US citizens need to pay into the Social Security fund. The government needs to know how long you are going to pay into the system and how long they need to pay you.
To accomplish this goal of predicting the death of US citizens, the government turns to actuaries. Actuaries put a price tag on risk. They are the leading professionals in finding ways to manage risk, and are experts in:
- Evaluating the likelihood of future events.
- Reducing the impact of undesirable events.
- Designing creative ways to reduce the likelihood of undesirable events.
Actuaries apply their mathematical expertise, statistical knowledge, economic and financial analyses, and problem-solving skills to a wide range of business problems. They help companies evaluate the long-term financial implications of their decisions; they develop new ways to manage risk, and they estimate the costs of uncertain future events ranging from tornadoes and hurricanes to changes in life expectancy.
The Social Security office publishes an actuarial table that gives the life expectancy of males and females. You can find the table at http://www.ssa.gov/OACT/STATS/table4c6.html. The table was published in 2006 but it is close enough for our purposes. As we look at the table there are a couple of things that quickly become obvious:
- If you were born today as a male, you would probably live to be 75. Your twin sister would likely live to be 80.
- If you are 50 today as a male, you would likely live to be almost 79. Your 50-year-old wife can plan on sticking around until she is over 82.
- If you were retiring from work at the age of 67 today, than as a male you could expect to pay bills until you are over 82 and your wife will probably make it over 85.
These are “average people” expectations so it is just as likely that you will beat the age as it is to not make it there.
The interesting thing about these actuarial tables is that it shows that the longer you have lived, the longer you will live. This is simply because you have avoided death up until now when some others have not. You were not killed in a car wreck or killed in a war. You didn’t succumb to a deadly childhood disease. You also didn’t commit suicide over a lost love. Instead, you have surpassed some things that have afflicted others born the same year as you; therefore you will live longer than then some of your peers.
Also, the longer you live the more the averages work for you. For instance let’s look at a male baby born today. If he unfortunately dies a year from now, it takes a lot of people living past 75 to offset his death in the tables – you can guess that it takes 74 males living to the age of 76 to average it out to 75. This is a simplistic example as actuarial tables are not just simple averages but they tend to act very similar to an average.
So for every person that graduated from high school in your year that has since passed away, you need to live longer just to make the averages work out. In essence, you are alive; therefore, you will probably beat the average of those that were born the same year you were born.
Which begs the question, how long should you plan to live? For arguments sake, I suggest 90-100 years. The tables show that most 80-year-old men are not going to see 90. They also show that very few 90-year-old men will see 100. The same is true of women although you could add a few year years to that guess and surmise 92-102 but the difference is nominal.
With the advances of current healthcare, you should also consider that you will be quite active until you are at least 80 or 85. By active, I am saying that you will want to take several plane trips per year to vacation destinations. You will want to visit your children and grandchildren. You will still be interested in a game of golf (or fishing or some other leisure sport) and you will be active in at least a couple of your hobbies. The dentist will make sure that you can still enjoy a nice meal at a restaurant and that bottle of wine will still taste as good then as it does now. In short, at 80 years old you will still have a wonderful life and want to spend money.
The only way to make your savings last until you are 100 is to effectively manage your portfolio. You need your money to grow. I suggest that you Grow on Other People’s Money (GOPM). GOPM will allow you to increase your financial security and enjoy the twilight of your life in luxury. Isn’t that what we all want?