That’s not the happiest thought in the world, it’s true. But estimating your life expectancy is essential to retirement planning. (If you don’t like the answer you get, it might be time for some lifestyle changes...).
Most of us are living longer, much longer, which is great for everything except your retirement savings. Your lifetime estimate should be optimistic enough to cover your last years, while also allowing you to maintain a comfortable lifestyle.
Estimating Your Life Expectancy
The Internet has a number of calculators for estimating life expectancy. Try this one from the University of Pennsylvania on for size. It’s fairly comprehensive and goes into both negative and positive life choices. And rather than just giving you one estimate, it gives four and then shows you how to change your lifestyle to increase your life expectancy.
Can you know to the day how long you’re going to live? No. But you will have a rough idea of how long you’re going to live. And that’s all you need. The difference between planning for 85 years and 83 years isn’t that great. The difference between planning planning for 85 years and 75 years can be huge. So don’t skip this step.
Estimating Your Annual Income
Once you know your projected life expectancy, you can start calculating both what you realistically can afford during your retirement.
For example, if your life expectancy is 80 and you plan to retire at 60, that’s 20 years of income to plan out. You can look at your current investments and see what they’ll get you over the course of 20 years. Alternately, you can set the income you want over 20 years, then adjust your current savings based on that.
Either way, knowing your projected life expectancy is valuable. But what if you’re not happy with what you know?
Changing Your Life
No one is ever too old to start making changes to their lifestyle. In fact, once you estimate your life expectancy, you’re very likely to want to start making changes to your life, financially if nothing else. So, as you begin to plan more rigorously for your retirement, start thinking about the kind of health (and healthcare) you want. After all, few things have the potential to cut into your nest egg (and happiness!) faster than a pile of medical bills. In a recent study, Fidelity estimated that the average cost of medical bills for retirees is $220,000 and rising. So, there’s a direct financial impact between your health and the kind of money you’re going to need to retire.
Preparing for a happy and healthy retirement requires long-term thinking not only about your finances, but also about your health. More to the point, you scrimp for years to give yourself a good retirement. You’re not going to have that laying in a hospital bed, or suffering from constant ailments. Now is the time to start making healthier choices so all that money you’ve been putting aside isn’t going to waste. Health is the real wealth.