All Things Financial Planning Blog

The other day the news headlines included a note that said the average life of men and women in 2010 was 2 years more than what it was in 2000. That got my attention for several reasons:

1. That suggested I would have the opportunity to enjoy an extra 2 years on this great earth. Yes, I know that I do not control that decision and neither does the Census Bureau, but it still felt good to know I had an extra 2 years.
2. It also meant that I needed to have sufficient resources to support my life style for an extra 2 years. Well, let me check that one out.
3. It means I need to rethink the advice I give my clients about what they will need to save to support their future lifestyle. This provides a discussion point for clients to think about what the rest of their life will mean.

The question of how long one will need financial resources has always been a challenge for many new clients to discuss. The first reaction is someone else knows the answer and he/she is not telling anyone what the right answer is. The second response is their life could end tonight or tomorrow or some other day in the near future due to some unforeseen accident or illness.

I remind clients we are not looking for some exact date, but we do need to have an understanding that we all have a finite time on this earth. So let’s look at what we have available for data. The people who know how to do the math on this keep detailed information and analysis that provides us with estimated average lives for men and woman and we know from the data that women outlive men by about 5 years on average. We also have an idea as to how long any person will live because we get news reports on when people reach certain ages and when the oldest person living passes away.

The same week that I saw the news about living 2 more years, I also saw that a new American citizen became that new citizen at the young age of 114. They even showed her birth certificate in the picture about her.

So how does all this age discussion fit into a financial plan and the amount of money each of us needs to have available for our lifestyle needs? Many times the client will ask what is the average age for people to live today. My response is about 80 years, but that is not the right answer for your financial plan. If we plan for the average and you run out of money at age 80, what will you live on when you get to age 80 and you are going strong? The answer is we need to consider you living longer than the average, but how much longer is enough?

I looked at the Census Bureau report on the 2010 census to get some clues for this blog. Here is some of what I found. For the people who were alive in the 2000 census and were age 80 to 84 then, how many of them were still alive in the 2010 census? The answer was about 30% were in the 90 to 94 age category in 2010. Now I recognize that the people in the 90 to 94 group were not exactly the same people who were in the 80 to 84 age group in 2000 for the statistical purests. However, for our purposes it is close enough for government work as the saying goes.

For financial planning purposes, what would be important for you as you consider what you should plan for as to longevity is that we are a population who is living longer with each passing year – 2 years more in just the last 10 years. That is similar to what happened in the decade from 1990 to 2000 as well. So what will the next 10 years do to our longevity? 

When I am doing a plan for a client, I suggest to them that my calculations will look at getting you to age 100 and still having money left. If I get that far, then I will quit calculating. If you do not get that far under my initial calculations, then we will discuss what changes need to be made to my assumptions until we do get you to age 100 and still have money left.

Maybe we change the return on investment that you need to experience. Maybe it is the estimated cost of your lifestyle going forward. Maybe it is increasing the amount you need to save each year until you reach retirement. There are other variables to consider changing ,but what is important to appreciate, we do not want to have you get to the average age (80s) today and not have money left in your nest egg to cover the next 10 or 20 or however many years you will actually live.

Now, how long did you say you were going to live on this great earth of ours?

Francis St. Onge, CFP®
President
Total Financial Planning, LLC
Brighton, MI