Life Expectancy
Expected lifespan used for retirement planning calculations. Determines how long retirement savings must last. Typical conservative planning: age 90-95, though 50% chance of one spouse living to 92+.
How it works
Life expectancy determines the planning horizon - how many years your retirement portfolio must support you. Underestimating longevity creates the risk of running out of money. Most advisors use age 90-95 conservatively, even if family history suggests shorter lifespan, because running out of money at age 88 when you live to 96 is catastrophic. For married couples, plan to the later of two life expectancies.
1. Assess Statistical Life Expectancy
Social Security tables show average 65-year-old lives to 84 (male) or 87 (female). But 50% live LONGER than average. For couple age 65, there's 50% chance one spouse lives to 92+, 25% chance to 97+. Conservative planning uses 75th-90th percentile, not average. Healthy non-smokers should add 3-5 years to tables.
Example: Male age 65: Average 84, 75th percentile 90, 90th percentile 94 | Female age 65: Average 87, 75th percentile 92, 90th percentile 952. Adjust for Health and Family History
Personal health factors can add or subtract years. Chronic conditions (diabetes, heart disease): -3 to -5 years. Healthy lifestyle (non-smoker, exercise, healthy BMI): +3 to +5 years. Family longevity (parents/grandparents lived to 90+): +5 years. Family history of early death: -5 years. Base adjustments on actuarial tables, not anecdotes.
Adjusted Life Expectancy = Statistical LE + Health Adj + Family Adj
Example: Base 87 (female) + 3 (healthy lifestyle) + 5 (family longevity) = 95 planning age3. Calculate Retirement Duration
Subtract retirement age from life expectancy to determine years of portfolio withdrawals. This is the 'distribution phase.' Longer duration requires lower withdrawal rate or larger starting portfolio. Common mistake: using average life expectancy instead of conservative high percentile.
Retirement Years = Life Expectancy - Retirement Age
Example: Retire at 65, live to 95 → 30 years of withdrawals | Retire at 62, live to 95 → 33 years of withdrawals4. Determine Safe Withdrawal Rate
Longer retirement periods require lower withdrawal rates for same success probability. The famous 4% rule assumes 30-year retirement (age 65-95). For 40-year retirement (age 55-95), safe rate drops to 3.5%. For 25-year retirement (age 70-95), can use 4.5%. This is a critical interaction.
Safe Withdrawal Rate = f(Retirement Years, Stock %, Success %)
Example: 30 years: 4.0% safe | 35 years: 3.7% safe | 40 years: 3.5% safe (assumes 60% stocks, 95% success)5. Plan for Longest Life (Married Couples)
For married couples, plan for the longer of two life expectancies. There's 97% chance at least one spouse survives 10 years, 50% chance one survives 25+ years from retirement. Plan for longer life; if both pass early, you leave inheritance. Better than opposite (run out of money if second spouse lives long).
Example: Husband to 90, wife to 95 → Plan to 95 | If husband passes at 82, wife needs portfolio to last 13 more years
Real-world context
Social Security Life Expectancy Tables
For 65-year-old in 2024: Average male lives to 84.1, average female to 86.8. But these are AVERAGES - half live longer! Better statistics: 25% of 65-year-old males live past 90.5, 25% of females past 92.5. For couple both age 65, 25% chance at least one lives to 96.5. This is why conservative planning uses 90-95, not the average.
IRS reference: Social Security Administration actuarial tables, 2024
The Longevity Risk
Exhausting retirement assets is a more serious risk than leaving a modest estate. Overestimating life expectancy (dying at 85 when you planned for 95) means leaving inheritance - not ideal but acceptable. Underestimating (living to 98 when you planned for 88) means 10 years without resources - catastrophic. This asymmetry is why conservative planning is prudent.
Historical Trends
Life expectancy increased ~10 years from 1960 to 2010 (68 to 78 at birth). But improvements slowing: little change 2010-2020. However, wealthy educated non-smokers (typical financial planning clients) live 5-10 years longer than population average. College-educated 65-year-old female has 50% chance of living past 90.
The 90+ Probability
For typical financial planning clients (healthy, non-smoker, college-educated, regular medical care): 65-year-old has ~40% chance of living to 90+. For married couple age 65, ~70% chance at least one spouse reaches 90. This makes age 90 a reasonable minimum planning target, with 95 being more conservative.
Impact of Lifestyle Factors
Never smoked: +7 years vs current smoker. Healthy weight BMI 18.5-25: +3 years. Regular exercise (150min/week): +4 years. Mediterranean diet: +3 years. Strong social connections: +3 years. These add up! Healthy lifestyle can add 10-15 years to statistical life expectancy. This is why advisor should ask about health habits.
What drives the result
Sets the planning horizon - how long retirement portfolio must last. Longer life expectancy requires lower withdrawal rate or larger portfolio. Most critical assumption after retirement age. Error of 5 years in either direction changes required savings by 15-20%.
Plan to 90: Need $1.5M for $60k/year | Plan to 95: Need $1.8M (20% more) | Plan to 85: Need $1.3M (13% less)
Combined with life expectancy, determines length of retirement period. Same life expectancy with earlier retirement = longer period = larger required portfolio. The combination matters more than either alone.
Age 62-90 (28 years): 4.0% withdrawal | Age 62-95 (33 years): 3.6% withdrawal | Age 67-95 (28 years): 4.0% withdrawal
Safe withdrawal rate decreases with longer retirement periods. Planning to 95 allows ~4% withdrawal for 30-year retirement, but only ~3.5% for 40-year retirement. Underestimating life expectancy allows too-high withdrawal rate, risking depletion.
30-year retirement: 4.0% safe | 35-year retirement: 3.7% safe | 40-year retirement: 3.5% safe
Assumptions
- Life expectancy estimates are reasonably accurate (reality: huge uncertainty)
- No major medical breakthroughs extending lifespan dramatically
- Healthcare remains available and affordable to maintain health
- No catastrophic health events forcing early spending (long-term care)
- Living independently (not in assisted living/nursing home with higher costs)
- Single life expectancy (married couples should plan for longest life)
Limitations
- Does not model probability distributions (planning to single age, not range)
- Does not account for lifestyle changes in very late life (reduced spending)
- Does not model long-term care costs (can be $100k+/year)
- Does not consider quality of life vs lifespan (may prefer higher spending earlier)
- Ignores tail risk (living to 100+)
- Does not model changing healthcare costs at advanced ages
Related
This page explains how Stratum models this calculation. It is educational material for financial professionals, not tax or legal advice, and tax law changes. Verify current figures against primary IRS sources before relying on them with a client.