By Boyce F. Lowery, CLU®, ChFC®
Have you ever stopped to think about how long you will live from your present age? Most healthy adults never really stop to consider it, but it is very important to your financial and family planning. Your life expectancy affects many aspects of your financial life including how much you need to save for retirement, if you are still working, to how much you can spend from your assets if you are already retired, to how much you have to pay for life insurance premiums.
What Does Life Expectancy Mean and What Affects It?
One’s life expectancy is simply the age to which one can be expected to live based on one’s current age compared to the average lifespan of others the same age. However, it is important to remember that one’s life expectancy is an average age to which people your age will live rather than an expiration date. Many people outlive their life expectancy many years while others are less fortunate.
There are many factors that affect life expectancy. Here are most of the major ones:
- Lifestyle. Drug abuse, excessive drinking, smoking, lack of exercise, etc. can all shorten one’s life and therefore one’s life expectancy.
- Affluence. People with more money usually live longer than those with less.
- Education. The more education a person has the longer they tend to live.
- Economic Conditions. The strength or weakness of the economy can affect overall life expectancy.
- Occupation. Stress reduces life expectancy, and stress levels can be greatly influenced by occupation.
- Diet. Diets can be both healthy and unhealthy, and can, therefore, raise or lower your life expectancy.
- Obesity. Weighing above the normal range can lower your life expectancy.
- Access to Healthcare. Better access to healthcare increases life expectancy.
- Infant Mortality. More deaths at birth lower life expectancy.
- Child Mortality. Life expectancy is also lowered when more children are likely to die.
- Environment. Water quality, air pollution, excessive sun exposure, etc. can all shorten life expectancy.
- Genetics. Life expectancy is adjusted based on family history of various diseases, longevity, etc.
- Gender. All things being equal, females outlive males.
- Marital Status. History has shown that married people live longer.
How to Calculate Your Life Expectancy
How do you calculate life expectancy when there are so many different factors that contribute to it? It can get pretty complicated to try to figure out on your own, but there are some good online calculators available. Any of these should give you a reasonable number:
- Living to 100. This calculator asks a series of 40 questions and is based on the largest study of centenarians and their families in the world. It also provides a personalized to-do list and suggestions for increasing your life expectancy.
- The Vitality Compass. Often considered the most accurate, this calculator was created in collaboration with the University of Minnesota’s School of Public Health and includes up to 12 customized recommendations to increase your longevity.
- Life Expectancy Calculator. Developed by the University of Pennsylvania’s Wharton School, this consists of 40 questions on a single page.
How Life Expectancy Affects Your Financial Planning
While it can be very interesting to know your life expectancy, it is vital when planning for your financial future. There are two areas of your financial life that are greatly impacted by your life expectancy.
The biggest savings and investment goal most people have is to accumulate money for retirement. You want to make sure that you put enough money aside while you are working to ensure you have adequate resources when you are no longer working. But how do you know how much you need to save?
One half of the equation is how much you will spend on an annual basis in retirement. Though you won’t know exact numbers until you’re living it, you can come up with a good estimate based on your current expenditures and expectations of retirement.
The other half is the harder one. How many years will you be spending your money? The amount you need to save is very different if you expect a 10-year retirement as opposed to a 30-year one. This is where life expectancy comes in. It will give you an idea of how many years to assume you will be around during your retirement years.
Yet, you shouldn’t just take your current life expectancy into consideration. You may need to plan for more than that. The current life expectancy for an American who turns 65 today is 84.3 for men and 86.6 for women. However, a quarter of today’s 65 year-olds will live past age 90 and one-in-ten will live past age 95. (1)
Life expectancy also plays an important role when it comes to life insurance. The lower your life expectancy, the higher your premiums will be. It also affects how much and what kind of life insurance you should purchase.
Last month we discussed term life insurance. One of the problems with term insurance is that the vast majority of term policies will not last as long as the insured will live. Even the 30-year term plans often fall woefully short. There are plans available that can guarantee coverage for one’s entire lifetime. Some permanent protection policies are ones that provide simple lifetime protection while others incorporate a tax advantaged cash accumulation component as well.
Also, life insurance can make up for a lack of retirement savings for married couples. On average, women live longer than men and are therefore often widowed. When a wife is younger than her husband, she may find herself living many years beyond her husband. Life insurance proceeds could mean the difference between living the final stages of life destitute or being able to maintain a reasonable lifestyle.
How I Can Help
If you’re unsure as to how your retirement savings rate compares to your life expectancy or you need a second look at your insurance policies, I can help. I am an experienced insurance expert and Chartered Financial Consultant®. Call me at 888-827-0146 and we can review your current situation and discuss moves that you can make to protect your financial future in light of your life expectancy.
Boyce Lowery is a 40-year veteran and established expert in the insurance industry. As the owner of Suncrest Advisors, he aims to provide financial security and peace of mind to business owners, executives and professionals, and high net worth individuals across the United States. Along with more than four decades of experience, he is a Chartered Life Underwriter® (the premier designation for insurance professionals signifying specialized knowledge in life insurance and estate planning) and a Chartered Financial Consultant® (known as the advanced financial planning designation). To learn more, visit https://suncrestadvisors.com/ or connect with Boyce on LinkedIn.