Retirees Have an Investment Horizon
Longer than They Think
By Shane Flait © 2011
Retirees at age
65 often think they have about 10
years left. They’re statistically
wrong and their projections on the
investment amount they’ll need to
carry them through retirement will
be wrong too. They misperceive their
remaining life expectancy. Here’s
what they should know about the time
they have left.
The typical life
expectancy you hear about is based
on how long people statistically
live starting from their birth year.
As an example, people born in the
year 1900 – the turn of the 20th
century – had a life expectancy of
about 53. That means 50% of the
people born in 1900 would live
beyond 53 while 50% died before
reaching it. Life expectancy is
statistically the ‘50/50’ age that
people will live to.
Better health and
medical care has increased our life
expectancies. For those born during
the mid twentieth century have a
life expectancy about 77. So 50% of
these people will live longer while
50% will die by then.
Actually, life
expectancy values are an average of
everyone born in a certain year. But
life expectancy actually varies
according to your sex and
socioeconomic status. Women’s life
expectancy is 79.9 while men’s is
only 74. And white collar workers
statistically live longer then blue
collar workers. So, how you control
your living style and health clearly
has an effect on your life
expectancy. So don’t expect to kick
the bucket at the 75 year mark. And
there’s more to the story…
Your remaining
life expectancy increases with age!
The older you
get, the further beyond your
original life expectancy you’re
expected to live! This happens
because you’ve survived early death
statistics that restricted your
original life expectancy based on
your birth year.
Mortality
statisticians track this extended
life expectancy for persons based on
their current age. As an example IRS
tables say that if you’re 65 years
old, you’re expected (50/50) to live
to 86; if you’re 70, you’re expected
to live to 87; and at 75 you’re
expected to live to about 89. You
won’t live forever but these
‘remaining life expectancies’ are
much longer than you may have
thought.
So you can see
that retirees generally have a much
longer horizon than they think. When
you plan your retirement years,
prepare based on living longer. This
longer life will affect your living
style, portfolio horizons, and
withdrawal rates.
But of course it’s all statistical.
Each of us is different. But if
you’ve made it to 65 you’re probably
tougher than you thought.
END
Shane Flait is a writer and
educator. See more at
www.EasyRetirementKnowHow.com
