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The RetireMentors

Retirement advice from experts in the business

Dec. 13, 2016, 4:30 a.m. EST

Good news and bad news: You may end up living a lot longer than you expect

How to plan for a longer — and better — life

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By Henry Hebeler

About Henry

Henry (Bud) Hebeler retired from The Boeing Company in 1989 where he was vice-president for corporate strategic and operational planning. Before that he was president of The Boeing Aerospace Company, a division which did all of Boeing’s space work and most of the military products. He now helps people with retirement planning personally and with articles and programs on Analyze Now, a site often referenced by The Wall Street Journal and many financial publications. He has three degrees from MIT, has been on advisory committees to the U.S. Congress, Departments of Interior, Commerce, Energy, and Defense, an economic advisor to the Washington State governor, a member of Washington's Economic Development Council and a member of several university boards.

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Mick Jagger, now 73, recently welcomed his eighth child.

In the Pickles cartoon by Brian Crane, Nelson asks his grandfather if he has bought a Christmas present for him yet. Grandpa says, "The real question is, did you buy ME a Christmas present?" Nelson answers, "Well, Grandpa, it's weeks til Christmas and who knows if you'll even live that long?"

Used with permission.

And so it is with retirement planning. How long will it be before you die in retirement? The key retiree savings forecast assumptions are life-expectancy and returns. Unfortunately, most people underestimate how long they will live and overestimate their future returns.

The attached table with Social Security Administration statistics helps to illustrate how life expectancy depends on age.Every year, the estimate of the age of death increases.For example a 30 year old male researching life expectancy might base his savings plan on living to age 78 per the Social Security Administration . If he then assumes he will retire at 65, he might base his retired years as 78 minus 65 which would be 13 years.

Then when he actually reaches 65, his new research would show he would expect to live to 83.That means retired years of 83 minus 65 or 18 years instead of 13.The result? Too little savings.

It gets worse. When he reaches 80, he is expected to live till 88, but he ran out of savings at 83.

The net of these outcomes is that he underestimated the amount of savings he would need at 65 and then, with less to spend, ran out of money long before he died, living on Social Security alone, and even that often taken too early at reduced amounts. That's the scenario we often see now and will occur more frequently in the future. The problem will compound as medical advances continue to extend life.

Read: What would your 90-year-old self tell you to change today?

Women live longer than the men shown in the table, and married couples have even longer life expectancies. You can get an estimate for married couples by looking at Required Minimum Distribution (RMD) factors from IRS Publication 590-B, Appendix B’s Table II. RMD factors are, in fact, life expectancies.

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Life expectancies represent the median age to die. People are just as likely to die before that age as after. It's surprising that even the elderly have little chance of dying within the next year of their life. Even a 95-year-old retiree has a probability of dying within the coming year of only 26%. Ignoring these probabilities in retirement planning leads to severe stress and poverty at a time when care costs are often the greatest —and neither Medicare nor private Medigap policies cover long-term-care. Medicaid requires spending down assets to $2,000 before eligibility.

So get out that pencil again and use more conservative life expectancies for your retirement planning. I am in retirement and make a new plan every year using the personalized life-expectancies for my younger wife from this life expectancy calculator plus five years — hoping that five will be enough so that our children will not have to support us like we did for my 96-year-old father and 91 year old mother-in-law.

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