Most people shortchange one of the most important issues in their retirement plans. The result can be a wildly inaccurate plan.
A goal of every retirement plan is to ensure your income and cash flow last at least the rest of your life. To meet that goal, you need a reasonable estimate of your life expectancy. But in most plans, the life expectancy estimate essentially is plucked out of the air.
People generally underestimate life expectancy, according to surveys. Americans believe the life expectancy for their age group to be much less than it really is. Better estimates are used when professionals help prepare a plan. Even then, however, life expectancy is little more than a rough estimate or guess, or to be on the safe side the planner assumes a very long life.
When life expectancy is underestimated, there’s a real risk of running out of money in retirement — and doing so many years before retirement ends. On the other hand, overestimating life expectancy means retirees save too much and have lower standards of living than they could afford. That’s great for their heirs and charities, but the retirees needlessly deprive themselves. An overestimate of life expectancy also might lead one to use higher-risk investment strategies to try to fund all those years of retirement.
In a good plan, the life expectancy estimate influences estate planning, the choice of Medicare plans, whether or not to buy an annuity, long-term care planning, annual spending, investment strategies, and more. That’s why the decision requires more attention and effort than most give it.
It’s easy to find the average life expectancy for your age group. You can use the life expectancy tables the IRS prescribes for required minimum distributions for IRAs and other retirement plans. You can turn to Social Security’s estimates on its website. Of course, web search engines generate a number of sources after searching for “life expectancy,” “life expectancy estimates” and similar terms.
Those sources, however, provide only the average life expectancy for your age group. Half the age group will live longer than their life expectancy and half will die earlier.
Some of the estimates have a further breakdown. An estimate might state a probability that women who are age 65 today are expected to live to age 90 or beyond. Such breakdowns are on the website of the Centers for Disease Control and Prevention (CDC), for example.
While helpful and better than guesses, these sources do little to help estimate your life expectancy. They tell what the averages and probabilities are for your age group.
More refined estimates can be made using various free calculators available on the internet. They usually ask a series of questions about your health and lifestyle. Some ask only a few basic questions while others ask about lifestyle and data from recent medical tests.
A popular calculator is at www.livingto100.com. Social Security has a life expectancy calculator on its website, and many life insurance companies also do. The Wharton School at the University of Pennsylvania has a calculator that received good reviews. You can access several well-regarded calculators in one place at www.lifeexpectancycalculators.com.
While better than life expectancy tables and averages, the calculators also have many shortcomings.
Some of the calculators aren’t updated to reflect the latest research and findings often enough. Many, in a quest to be user-friendly, limit the questions they ask, leaving out important issues. Most, for example, don’t ask if a person ever had cancer.
Some of the calculators make arbitrary decisions. For example, research shows that calcium-rich diets improve bone density and reduce hip fractures late in life. But the research doesn’t show how much a calcium-rich diet and avoiding hip fractures increase life expectancy. Yet, at least one calculator asks about calcium in the diet and arbitrarily adjusts life expectancy based on the answer. The calculators also rely on self-reported information, which can be incomplete or inaccurate.
Perhaps most important, the online calculators treat each factor in isolation. In the real world, factors often interact. Two or more factors can increase or decrease life expectancy more together than each factor alone.
In the past, I’ve advised readers to use the online calculators but use more than one. You’ll see different results, sometimes differences of a decade or more. Then, you decide if you want to be conservative and use the longest projection, average the results, or use another method.
A more personal, detailed, scientific and customized estimate is a better way to estimate your life expectancy. Insurers and life settlement firms have used customized life expectancy analyses for years. Now, at least one is available for individuals at reasonable cost, myLQAnalysis from LongevityQuest (LQ).
LQ partnered with ExamOne/Quest Diagnostics, which developed the science and models behind the service. ExamOne examined a decade of data in millions of individual records from multiple insurers and the Social Security Administration. The result is models that use at least 140 factors and methods from different scientific fields that LQ uses to produce your custom life expectancy probabilities and other data.
The approach doesn’t look at factors separately or at only a few factors. The statistical modeling revealed that when a great number of factors are examined and evaluated together, a person who appears to be healthy using traditional methods might be revealed to be at high risk of premature death. (The reverse also is true. A person who is unhealthy by a few measures might live a long time.)
Also, seemingly minor test results outside the normal range are revealed to be significant when evaluated in combination with other factors. Health problems that haven’t been revealed by traditional tests and exams can leave early markers in multifactor blood tests, making this system something of an early warning system in addition to a longevity estimate. LQ has interesting examples on its web site of how its models yielded different, more accurate assessments than traditional methods in several real cases.
Participants in the service receive a scientific life expectancy estimate down to the hundredth of a year, such as you’re likely to live to age 89.63.
But you receive more than a number. The report shows where your calculated life expectancy ranks compared to others in your age cohort. There’s also a calculator that shows the probability of your living to different ages. That information can be especially valuable in retirement planning — improving your plan by providing a risk-adjusted time horizon.
Another part of your analysis is a unique presentation of the lab results using Inside Look from ExamOne. The report shows your blood test results, but probably in more detail than you receive from your medical provider. The analysis also displays which factors are adding to and subtracting from your calculated life expectancy and to what extent.
The service doesn’t diagnose diseases or conditions, but it can provide a warning signal that isn’t available from traditional medical reports. It can lead your doctor to pursue additional diagnostic work or to revise your wellness plan to improve your health and life expectancy. Ideally, you’ll have the analysis done again in a year or two and compare the results.
Even a customized life expectancy analysis isn’t precise. That’s why the service gives you a probability of living to different ages.
Also, the analysis can’t cover everything. It doesn’t reveal the probability of an accidental death or exposure to genetic risks or mental health issues. But it is more precise than traditional life expectancy estimates and can make your financial planning more reliable, in addition to pointing you to desirable lifestyle changes. The myLQAnalysis is for anyone from ages 18 through 79.
Obtaining your custom life expectancy analysis is easy. Go to www.mylongevityquest.com and click on “Get Started” in the upper right of the screen. Purchase the analysis and schedule your exam. The exam can take place at your home or office at your convenience or at various facilities around the country. A paramedic will collect samples, take some measurements and ship your samples to the lab. Within five days, you’ll receive an email saying that your analysis is available. Log in to the website to review your analysis.
The report normally costs $350. Retirement Watch members can receive it for $299 by entering promo code RWATCH.