Living to 100: Financial Security Implications
Oct 4, 2022
Blueprint Income Team
- The possibility of living to 100 and the resulting need for financial security over a longer duration are important issues.
- It’s not likely that you (or even a baby born today) will be living to 100, but it’s more likely than it ever has been.
- We think the best source of data on the possibility of living to 100 (and life expectancy in general) comes from the Society of Actuaries. Every year they provided updated mortality projections. The SOA is the standard that most pension plans and annuity providers go by. Other data sources include the Social Security Administration’s figures.
Optimists tend to believe that every baby born today will live to 100 or longer because of advancements in health and other factors that improve our standard of living. The pessimists believe that we’ve reached peak longevity, as evidenced by the last two years of declines.
There’s no right answer to whether we will live to 100 or the duration over which we would need to plan for financial security, but luckily we have a lot of good data to go off of based on what’s happened in the past.
In this article we look at different data sources to answer these important questions.
The Society of Actuaries compiles one of the most reliable data sets for the life expectancy of pension plan participants. In its 2017 study, it said that the life expectancy for a 65-year-old-male pension plan participant was 85.6, and 87.6 for a 65-year-old female pension plan participant. That means if you make it to 65, you’re projected to on average live to ~86-88 years old.
The CDC also puts out estimates across the entire population starting at birth. They estimate the figures to be 76.3 for males and 81.2 for females. And, from age 65, they estimate that males will live 18.0 more years until 83.0, and females 20.6 more years until 85.6. (As you age, your life expectancy increases as you've successfully made it through a year in which there was a probability of passing away.)
From Age 65
From Age 65 (Pension)
Data from birth and from age 65 comes from a 2015 study by the Centers for Disease Control and Prevention. Data from age 65 with a pension comes from a 2017 study by the Society of Actuaries.
When it comes to retirement planning, the data starting at age 65 is more relevant, because financial security (how much money you need) in retirement is only relevant if you make it to retirement age. And interestingly, having a pension seems to correlate with increased life expectancy. Perhaps because having guaranteed retirement income means one less thing to stress over?
A couple years ago, we worked with Wharton Professor Emeritus Dean Foster (who is also a data scientist at Amazon) to launch an updated longevity calculator that was based on a longitudinal study conducted by AARP and NIH, updated to reflect the Society of Actuaries’ expectations as well.
Based on the traffic and how it ranks in Google search rankings (usually first!), we think it’s probably the most widely used longevity calculator in the world. It’s not perfect. No one has a crystal ball. But it’s a quick way to get a reasonable estimate
The idea of living to 100 — or a long time — is exciting! More time to spend with your family. More time for the hobbies you love. More time to just live, grow, and learn.
The only problem with living to 100 is that living costs money! That means, all else equal, you’ll need more money to sustain your lifestyle in retirement. Historically, when people had pensions, this wasn’t a downside to longevity that you had to consider. That’s because, with a pension, you received a retirement paycheck every year, no matter how long you lived. But our method of preparing for retirement today, namely saving money into a 401(k) or IRA, winds up penalizing your longevity and compromising your financial security. The longer you live, the more likely you are to use up your savings.
There is a lesser known option for retirement planning that rewards you for being healthy by protecting your longevity. It provides guaranteed income in retirement, either starting right when you retire or when you reach an advanced age, guaranteed by insurance companies. It’s called an income annuity, and it works much like life insurance, but protects against the opposite risk. Insurers provide this guarantee for a large population, thus pooling everyone’s longevity risk. Those who live longer than others are provided “extra” income from the pool.
At Blueprint Income, we created our online annuities marketplace to make it easy for anyone to get guaranteed income through annuities. Signing up for a Blueprint Income account is like signing up for a Betterment account, except instead of access to the stock market, you get access to the guaranteed income annuity market.
So, if you can reasonably expect to live a longer than average retirement, guaranteed income from an income annuity is the best way to get the same security that a pension provides in a world where fewer and fewer people have then.
- The Blueprint Income Longevity Calculator
- FAQs about the Blueprint Income Longevity Calculator
- Social Security Life Expectancy Calculator
Blueprint Income Team
We are a team of finance, insurance, and actuarial professionals working to make it easier for everyone to achieve a steady and comfortable retirement. We write about annuities (the good and the bad) and provide strategies to help Americans prepare for retirement.