Getting Longevity Right

Underestimating longevity is one of the most common and costly retirement planning mistakes. People consistently underestimate how long they are likely to live.

Your plans should have a realistic estimate of life expectancy. You should be conservative, meaning have a bias in favor of a longer life span.

The Life Expectancy tables from the Society of Actuaries, while authoritative are hard for many people to work with. A better option is to use the free life expectancy calculator at their web site www.soa.org.

Another good free source is the blog of Nobel Economics Prize laureate William Sharpe. Though it has the disadvantage of using older, broad-based mortality tables, it has a number of useful features. It offers a link to free software that allows you to compute the probability of living to a certain age for an individual or a married couple. It also gives detailed instructions on the software and discussions about longevity. Go to RetirementIncomeScenarios.blogspot.com.

RW May 2015.