NEW YORK (MainStreet) — Nobody lives forever, which oddly enough may be a comfort when you are planning for a financially secure retirement. The only thing keeping you from needing an infinitely large balance in your retirement account is knowing that you won’t live forever. But before you can realistically plan to have enough money to sustain you for life, you need to have some idea how long you’ll live.
The difficulty of making that kind of projection is part of the reason why half of people polled in a 2014 Wells Fargo/Gallup poll said they were worried about outliving their money in retirement. This is where online lifespan expectancy calculators come in.
Lifespan expectancy or longevity calculators are free online tools that use mortality statistics to generate estimates about the average length of time someone can expect to live. Usually, estimates are modified by risk factors, such as a history of smoking or family medical problems, that are specific to the individual using the calculator.
Lifespan expectancy calculations have long been used for by insurance company actuaries to price life insurance premiums. More recently, corporate pension actuaries employ them to estimate how to pay for defined benefit pension plans. Today, as individuals have become primarily responsible for funding their own retirements through defined contribution plans, they’ve entered individual retirement planning.
Using a lifespan calculator can be as simple as taking your next breath. The Social Security Administration’s lifespan expectancy page tells you in a glance that a man reaching age 65 today can expect to live, on average, to 84.3, while a woman turning age 65 today can expect to live, on average, until age 86.6. If you want a more tailored forecast, you can use the Social Security calculator to enter your gender and birth date. The result is likely to differ little from the overall average.
For a more individualized look, the “How long will I live?” calculator created by a University of Pennsylvania Wharton School computer science professor asks dozens of questions about height, weight, race, education, family medical history and more.
The intended use of the calculator, according to creator Lyle Ungar, is to show effects specific behaviors have on average life expectancy. Ungar’s idea was to help people decide whether or not to, say, quit smoking or start exercising. “In fact,” he said, “most people use my calculator for financial planning.”
There is a problem with that -- there is no reliable way to tell using population-wide mortality data how long any individual will live. “It's like the stock market,” Ungar says. “It's based on history but it's random. And past performance is no guarantee of future performance.”
Ungar’s calculator will generate one number, say, age 88.2, that an individual can expect to live to with 50% accuracy. A lower number, say, 80.4, has a 25% likelihood of representing the end, while a higher number, say, 96.6, is similarly 25% likely. Although precise, however, these are probabilities, not certainties. And that’s the problem.
“I personally don’t want to spend my last penny on the date of my life expectancy,” Ungar says. “Because at that point I’ve got a roughly 50-50 chance I'll still be alive for many more years.”
This possibility of planning to die broke only to live a long time broke does not keep financial services companies from providing calculators that give highly specific-seeming answers. Northwestern Mutual Life Insurance has one that lets you see how your life expectancy changes in real time as you change answers. If you stop wearing your seatbelt, you’ll see, you lop several years off your life -- probably.
Another thing you need to know about lifespan calculators is that professional retirement advisors don’t use them. Chantel Bonneau, a financial planner with Northwestern Mutual in Los Angeles, says she plans as if every client will live to 100. She’ll modify that if clients insist on planning only to, say, age 85, or there is some other health concern.
Bonneau reasons that every individual is unique, and caution commands that we prepare for a maximal life expectancy when it comes to our finances. No one can say for sure when you personally will run out of life. But she is sure of one thing: “You cannot afford to run out of money.”