Will You Live to 100?

If you want to see how long — on average — you can expect to live you need only to consult standard actuarial tables.  But if you undertake your retirement planning based upon an average lifespan, you have a 50 percent chance of outliving your planning. Moreover, we all generally underestimate how long we will live by a lot (more here). Indeed, this year’s Risks and Process of Retirement Survey from the Society of Actuaries again shows that many people have a much shorter planning horizon than their future expected lifespan.

According to the Society of Actuaries, 30 percent of all American women and almost 20 percent of American men age 65 can expect to reach 90 years old. In Britain, the Department for Work and Pensions has released a report detailing life expectancy and comparing the generations at 20, 50 and 80 years old. The data sees 20-year-olds as being three times more likely to reach 100 than their grandparents, and twice as likely as their parents. Even so, a girl born in 2011 has a one-in-three chance of living to her 100th birthday while a boy has “only” a one-in-four chance.  Compared to a baby born in 1931, today’s children are almost eight times more likely to become centenarians. An easy tool to see your own likelihood of reaching 100 using this data is available here; it says that I have a 10.5 percent chance of reaching 100.  I’m not sure if that’s good news or not.

Actuaries in the United Kingdom are now pricing longevity risk in insurance contracts using age 125, and those in the U.S. are using age 120. Thus for anyone thinking s/he might not need to plan beyond age 90 or even 100, the key take-away is that “tail risk” is substantial – that is, the risk of living well beyond one’s life expectancy, into old old age.

According to Danish researchers, if the pace of increase in life expectancy in developed countries over the past two centuries continues through the 21st century, most babies born since 2000 in France, Germany, Italy, the UK, the USA, Canada, Japan, and other countries with long life expectancies will celebrate their 100th birthdays. Although trends differ between countries, populations of nearly all such countries are aging as a result of low fertility, low immigration, and long lives. A key question is: are increases in life expectancy accompanied by a concurrent postponement of functional limitations and disability? The answer is still open, but research suggests that aging processes are modifiable and that people are living longer without severe disability. This finding, together with technological and medical development and redistribution of work, will be important for our chances to meet the challenges of aging populations.

The analysis of data by these same Danes from more than 30 developed countries reveals that death rates among people older than 80 are still falling. In 1950, the likelihood of survival from age 80-90 was 15-16% for women and 12% for men, compared with 37% and 25%, respectively, in 2002. “The linear increase in record life expectancy for more than 165 years does not suggest a looming limit to human lifespan. If life expectancy were approaching a limit, some deceleration of progress would probably occur. Continued progress in the longest living populations suggests that we are not close to a limit, and further rise in life expectancy seems likely,” Kaare Christensen, of the Danish Aging Research Center at the University of Southern Denmark, and colleagues wrote.

If you want to look at your own life expectancy using more variables than just age and sex, a number of tools exist for doing so.  Examples follow.

Northwestern Mutual Life’s Lifespan Calculator
Northwestern Mutual Longevity Game
Vanguard Longevity Calculator
Wharton Life Calculator

So how many of us will actually live to age 100? Whatever the number, it’s almost surely higher than we think and, obviously, that has serious implications for retirement planning.

“Except for health coverage, insurance products such as annuities and long-term care insurance are not seen as major components of retirement planning,” said actuary and retirement expert Anna Rappaport just last week.  Rappaport serves as chair of the Society of Actuaries’ Committee on Post-Retirement Needs and Risks. “As a result, many retirees continue to be at risk of running out of assets and having to rely solely on Social Security,” she said. 

As Seneca pointed out over two centuries ago, “Our minds should be sent forward in advance to meet all the problems, and we should consider not what is wont to happen, but what can happen.”

How prepared are you for what can happen?