A financial plan is only as good as its foundational assumptions. For retirement planning, the most critical assumption is one that is impossible to predict with certainty: your longevity. Without an educated projection of your lifespan, it’s difficult to accurately forecast how to create enough income to sustain your lifestyle without the risk of outliving your assets.
Personalizing Your Projected Lifespan
Instead of relying solely on national averages, a more precise approach is to have an honest conversation with yourself about your own longevity. The current average life expectancy in the U.S. is approximately 75.8 for men and 81.1 for women. While a financial planner might use a conservative number like age 95 to ensure a plan is overfunded, you can get a more tailored estimate by examining your own history.
- Family Health History: Take a deep dive into the health histories of your parents and grandparents. Is there a pervasive history of heart disease, cancer, or other illnesses that ended their lives early? Understanding these genetic predispositions can empower you to take proactive steps to mitigate those risks in your own life.
Using Longevity Calculators
Another valuable tool is an online longevity assessment or “lifespan calculator.” These tools ask a series of detailed questions about your health, lifestyle, and family history to provide a more personalized projection. The questions often cover factors like:
- Diet and exercise habits
- Smoking and alcohol consumption
- Weight and blood pressure
- Your parents’ and grandparents’ ages and causes of death
These calculators can help you understand how your personal choices may impact your health and longevity, providing a more data-driven number to use in your financial planning.
Protecting Against the Unexpected: Long-Term Care
Even with a well-researched lifespan projection, an extended illness or a long-term care need can deplete your savings. This is where Long-Term Care (LTC) insurance becomes a critical part of the plan.
Traditional LTC policies are often referred to as “use it or lose it,” meaning if you never need the care, you may have paid thousands in premiums without receiving a benefit. A newer, more popular alternative is a hybrid policy, which combines life insurance with long-term care coverage.
A hybrid policy solves the “use it or lose it” dilemma by guaranteeing a payout. If you need long-term care, the policy’s benefits are used to cover those costs. However, if you never need the care, the policy’s full value is passed on to your heirs as a death benefit. This ensures that your investment in the policy is never wasted, providing both peace of mind for your future and a legacy for your family.