This article was posted on September 1, 2000.
Most people don't realize that actuarial tables and most of the calculators on the Internet show you the "average" or "median" life expectancy. That means there is a 50/50 chance you'll live longer. But how much longer?
The chart below plots the life expectancy for several probabilities from "average" to the "99th percentile" (the latter means there's only a 1% chance you'll live longer.) When selecting your pay out period for determining your safe withdrawal rate in retirement, it might be wise to choose something higher than the "average value." This will allow for a factor of safety in your calculations.
For example, a 40-year-old has an average life expectancy of living an additional 43 years to age 83. The 99th percentile value of 65 years means there is a 1% chance our 40-year-old will make it to 105 years of age. For a 70-year- old, the average life expectancy is another 17 years to age 87. The 99th percentile value shows an additional 35 years to age 105. There's a 10% chance a 70-year-old will make it to age 98.
If you are married, you should use the joint life expectancy -- last survivor figure. For example, while two 55-year olds individually have a 50/50 chance of living an additional 30.91 years to age 86, taken together, the last survivor of the pair has a 50/50 chance of living an additional 36.18 years to age 91. If you want to calculate your own life expectancy, there's a downloadable Excel spreadsheet at the link below based on the 2003 IRS Mortality Table.
Advances in health care appear to hold the promise we’ll all be living longer. Assuming you’ll reach 100 years of age may not be as bold as once thought.
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