What are your chances of living to 95? Mine are 33%. That's one-in-three odds of making it to the default age for financial planning software.
Put another way, there's a two-thirds chance I'm saving too much. Most Americans don't have the luxury of over-saving, but those who work with advisors might find themselves in that position if they follow financial projections that extend to an age they're unlikely to reach.
Despite the country's longevity obsession, there's plenty of uncertainty about how long we'll need our money to last, along with misperceptions about life span. Only 1 in 3 adults could correctly identify how long a 65-year-old will live on average, according to a recent study by the TIAA Institute and Stanford Global Financial Literacy Excellence Center. (The answer: 84 for a man, 87 for a woman. Life expectancy at birth is much lower: 76.5 for males born in 2024 and 81.4 for females.)
A better sense of your life span can help you budget and invest. You could adjust your Social Security claiming strategy, make tweaks to your portfolio, and create a legacy plan that meets your bequest goals.
New, AI-powered tools may help you plan more accurately, assuming you're willing to reveal a lot of personal data. Abacus Global Management, for instance, recently introduced LifeARC, a proprietary, AI-powered modeling platform that generates a longevity estimate based on people's individual medical histories, medications, and other data.
"Financial planning is going to shift in a massive way to include your health and life span," says Abacus CEO Jay Jackson.
Tools like that may be helpful to avoid saving too much or too little, though you may not need AI or other sophisticated software for the answers; simple actuarial tables may get you close enough.
You can get a better-than-average estimate from just four inputs: your age, gender, health status, and smoking history. The American Academy of Actuaries and Society of Actuaries, for instance, have a free longevity illustrator that uses those inputs.
Adding a few more health variables may get you a more accurate probability. Say you have two 70-year-old men. One is a smoker with poorly controlled Type II diabetes; the other is in good health with no chronic conditions or smoking history. The first man has a life expectancy of 77, while the second is likely to live until 89, according to estimates provided to Barron's by analytics firm HealthView Services.
A portfolio for each may thus look very different. The healthy septuagenarian would likely need a bigger allocation to stocks to keep pace with inflation over the decades; the smoker can probably afford a more conservative mix.
A standard financial plan, however, will treat them both the same way. Financial firms run simulations that gauge how long clients' portfolios will last in various scenarios -- say, a 4% annual withdrawal rate in a severe market downturn -- and they typically run those out until 90 or 95.
Why 95? That's still longer than most Americans have in the cards. Yet the prospect of running out of money in retirement is scarier to most people than death, surveys have found.
Financial planners tend to encourage prudent spending and staying invested long-term, just in case. It doesn't hurt that financial firms typically collect a percentage of assets under management, so they have an incentive to keep clients' balances as large as possible.
Yet retirement will always be a balancing act between enjoying the present and preparing for an uncertain future. More tailored life span projections can make the exercise a little easier. If an estimate suggests your remaining time could be limited, for example, you might claim Social Security at 62 and take that trip to Machu Picchu.
Knowing your estimated demise can cause anxieties and familial problems, of course, but sticking your head in the sand can also be costly.
I used the Actuaries Longevity Illustrator to generate my 33% chance of living at least to 95. I'm going to try to save enough to last me until then. If I make it to 105 (a 3% chance), all bets are off.