There’s a particularly useful table available online. Here I’ll show you how to use it.
When I first planned my website and book, I planned a post telling you about longevity tables, partly because it’s useful to have some estimate of your potential longevity, and also to help you with an input for the Personal Funded Ratio calculator. Since then I discovered a very useful one, at www.longevityillustrator.org, and so I’ll use it as the standard one I refer to, and I’ll explain it in this stage.
But I also recognize that it may not apply to many readers. So in the next post I’ll explain how to adapt it to fit your own circumstances. In that way it should be useful to everyone.
The simplest and clearest way to start is to quote from the Welcome message on the website:
“Developed by the American Academy of Actuaries and the Society of Actuaries [in 2016], the Longevity Illustrator is designed to provide you with perspectives on your longevity risk—the uncertainty of how long you and your spouse/partner might live. It does not address your finances, your investments, your earning potential or your anticipated expenses; consult with a financial professional about those aspects of your retirement planning. We invite you to use the Longevity Illustrator to enhance your understanding of the potential risk for outliving your financial resources.”
Beautifully expressed, and exactly what we need here.
“The projections shown in the Actuaries Longevity Illustrator are based on mortality tables used by the Social Security Administration in the annual Trustees’ Report. There are separate rates for males and females.
“Because mortality rates show a long-standing trend of improving, the Longevity Illustrator is based on the assumption they will continue to improve according to the MP-2015 rates published by the Society of Actuaries. These improvement rates are applied to the 2010 Social Security mortality tables to project mortality rates to future years.
“Additional adjustments are made for health status ranging from 80% to 125% depending on age and for smoker status ranging from 77% to 211% depending on age…
“There are many factors that affect longevity. These include: income, family history, geography, life style, occupation, current medical conditions, and ethnicity. While these all affect longevity, the four factors (age, gender, smoking and health) chosen for this calculator have been shown to account for a significant amount of the individual variations in longevity.”
As you’ll find, the website asks you a (very) few questions about yourself, so that you can get the output you seek.
And then you see the projections. You can print them, change the inputs, and do other useful things. (You can see why I like the website so much.)
The numbers I’m going to refer to are those called “Planning Horizon” – those are the ones I believe are the most useful, though of course the other numbers can be fascinating in their own right. You can get numbers for yourself alone or for you and your partner. I’ll assume you’re using the ones for you and your partner. A nice feature is that you can be a male/female partnership, or male/male or female/female – that saves me having to explain how to adapt the projections for same-sex couples, as my original book draft did.
Let’s start with the 50% numbers. These show four things:
- Your life expectancy, in years. Remember that in post # 5 (http://donezra.com/what-does-life-expectancy-mean/ ) we said that half the population outlives their life expectancy. So you have a 50/50 chance of living at least this number of years.
- Your partner’s life expectancy. Same comment.
- Your “joint and last survivor” (or JLS, for short) expectancy, as explained in post # 5. That’s the average length of time until the second “estate event” (a term some American insurance agents use, as a euphemism for – how should I say this? – passing away). So this is the best estimate of the length of time that at least one of you is likely to survive.
- Your “joint” life expectancy, which is the period for which both of you should survive together.
Notice that the numbers are round numbers – no fractions, no decimals. I like this feature. Of course it’s possible for techies to go back to the actuaries’ original tables and calculate the outputs to as many decimals as one likes. But frankly, who cares? These are all rough estimates, for initial planning purposes, and the decimals are irrelevant.
I produced one set of numbers (the inputs don’t matter), for which these numbers turned out to be 13, 15, 18 and 9. Let’s interpret them.
13 and 15 are the individual life expectancies of the two partners. Their JLS expectancy is 18 years, meaning that that’s the best estimate of how long at least one partner of the pair will survive. Their joint expectancy is 9 years, meaning the best estimate is that both will be alive together for 9 years. Put the last two estimates together, and it means that the best estimate is that they’ll be alive together for the first 9 years, and then the survivor will be alive for a further 9 years.
By the way, the Actuaries website allows you to click on the following question: “Why is the number of years that either one or both of us will live greater than the number of years one of us will live?”
This is the same question I attempted to answer briefly in post # 5, in my fourth point there. The Actuaries website goes into some of the numbers. If you like playing numbers and probabilities, you might enjoy looking at them!
I’m going to ignore the 90% and 75% numbers, which I suspect are for curiosity rather than for planning purposes. Let’s go to the 25% and 10% numbers.
You’ll remember the concept from post # 5. We start by considering a large group of people of the same age and gender. As we follow them through life, the number remaining will gradually decline. At some point (the 50% numbers above), only half of the original group will be left. Some time later, only one-quarter of the original group will be left. Later still, only one in every 10 original members will be left. And so on.
The 25% and 10% numbers show the points in time at which 25% and 10% will be left, respectively.
Now you understand and know how to find the 50%, 25% and 10% longevity estimates for you and your partner.
I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.