When trying to calculate exactly how much time they need to save, many retirees make a crucial math error.
They look at the average life expectancy in the US of 79 years and assume that their money will only last about a decade after they leave their careers at age 67. That calculation is one of the most dangerous mistakes you can make.
National life expectancy at birth is a factor in early life events and diseases that naturally drag down the overall average. If you’ve already successfully navigated your way to your fifties or sixties, that basic math no longer applies to you. You are a survivor and your financial runway has likely been extended by decades.
The conditional mathematics of aging
Actuaries call this conditional life expectancy. It measures how long you are statistically expected to live after reaching a specific milestone, such as age 65.
For Americans, reaching age 65 means your estimated life expectancy immediately jumps to 84 years, leaving you with 19 years left to finance. This longevity paradox isn’t just an American phenomenon – it’s a global problem. In the developed world, individuals reaching traditional retirement age often face an estimated timeline of 17 to 20 years.
- Country: retirement age, life expectancy at 65, retirement years
- United States: 67, 84, 17
- France: 64, 87, 23
- Japan: 65, 87, 22
- Canada: 65, 86, 21
- South Korea: 65, 86, 21
- Australia: 67, 87, 20
- Spain: 66, 86, 20
- United Kingdom: 66, 85, 19
- Italy: 67, 86, 19
- Germany: 67, 85, 18
- Denmark: 67, 85, 18
- Mexico: 65, 83, 18
Note: Retirement ages reflect current or active phase-in normal retirement age for full benefits. The figures for conditional life expectancy (at age 65) are based on the The latest demographic indicators from the OECD.
Surviving the wealth gap
The expected retirement period of 19 years for the United States is just the new starting point. In America, lifespan is strongly correlated with income and access to healthcare.
Higher income earners generally benefit from high-quality preventive care, better nutrition and safer working conditions. If you have the resources to actively build an investment portfolio, you probably fall into a demographic that routinely lives into your late 80s or 90s. Planning for a 19-year retirement is a guaranteed way to survive on your money. You should consider the life expectancy of someone in your specific financial category, not the national average.
Financing with a longer horizon
The knowledge that you may live to be 90 or older forces a radical change in the way you manage your investments. The old model of moving your entire portfolio into conservative bonds as soon as you stop working no longer applies. If your retirement is going to last 25 years, your money still needs to grow to outpace inflation.
Maintaining a healthy stock allocation in your portfolio is mathematically necessary to maintain purchasing power for two to three decades. While bonds provide stability for your immediate monetary needs, stocks are the engine that will help you finance your later years.
Strategies for the extended timeline
Delaying Social Security benefits is becoming one of the most powerful tools you have at your disposal. Every year that you wait longer than your full retirement age, until you turn 70, your benefit increases by 8%. Lock in that higher guaranteed payout. It acts as a permanent, inflation-adjusted insurance policy against exceptional longevity.
You should also stress test your withdrawal rate. The famous 4% rule is mathematically designed to make a portfolio last thirty years. If you’re retiring at 65 and plan to live to 95, this seems like a perfect choice. However, modern financial planners caution against using it as a gold standard.
The rule was created in the 1990s based on historical data and does not take into account modern market realities, such as prolonged periods of high inflation or prolonged low bond rates. Plus, living for thirty years means you’ll almost certainly experience some serious market crashes. If the market falls early in your retirement and you continue to withdraw 4%, you could deplete your principal so quickly that your portfolio cannot recover when the market recovers.
Many economists are now proposing a dynamic withdrawal strategy, often starting closer to 3% or 3.5%. By lowering your initial drawdown, you create a shock absorber for bad market years, ensuring your assets actually survive the extended life you plan for.
If you have more than $100,000 in savings, seek advice from a professional long before you plan to retire. SmartAsset offers a free service that matches you with a vetted fiduciary advisor in less than 5 minutes.
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