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The hardest question in retirement planning is the first one: How long do you expect to live? I'm afraid recent developments are making that question even harder to answer. But it's unavoidable, so what's the smart way to think about it now?
Let's start with what we know: that life expectancy in the United States is about 78. Unfortunately, this fact is useless for retirement planning. The Centers for Disease Control and Prevention announced last year that a child born in the United States in 2005 can expect to live 77.9 years. But you're not a child, and in any case the notion of estimating (to a decimal place) how long the average child born in 2005 will live is obviously crazy, with all that's happening in medical science. The figure is actually calculated by assuming that all 1-year-olds, 2-year-olds, and so on through 100-year-olds have the mortality results of people in that age group in 2005, creating what the researchers call a "hypothetical [or synthetic] cohort." Bottom line: Let's just ignore life expectancy at birth.
What about life expectancy at your age? Those figures are still constructed from the synthetic cohort, but they're arguably less squirrelly because they aren't looking so far into the future. As of 2004, the most recent year for which detailed statistics are available, a 60-year-old man could expect to live another 20.8 years; a woman, 24 years. Now we seem to be getting somewhere; a 60-year-old man should plan on living to 81. But not so fast. Mike Heller, the top actuary for TIAA-CREF, America's largest seller of annuities, points out that the 20.8 figure is just an average. If your retirement plan assumes you'll live to 81, you probably won't hit it right on the button. More likely, either you'll die earlier than you thought or |
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