Retirement May 19, 2016

    You can't know how long your retirement years may last—but if you're healthy and have a good income, you may want to buckle in for a long ride.

    The average 65-year-old man can expect to live to 82; the average 65-year-old woman can expect to live to 85. But an "average" life expectancy just means that 50% of a given group will still be alive past a particular age, and the healthier and wealthier you are, the likelier you are to exceed the average.1

    If you're a saver with a higher life expectancy, you may encounter a form of risk you didn't anticipate: longevity risk. It's the risk that you'll completely deplete your retirement savings before you die.

    How long should I plan for?

    While you could simply plan for an "average" life expectancy—the one-in-two chance you'll live longer than what's shown in the tables below—the Schwab Center for Financial Research recommends planning a little more conservatively, for the one-in-four chance that you'll live longer than shown. If you want to be very conservative, you can plan for a one-in-ten chance you'll live longer than shown.

    Keep in mind, though, that this is a balancing act. You probably don't need to plan to 120. You want to plan for long enough. And remember, you can always come back and adjust your time horizon throughout retirement. 

    The longer you live, the longer you're likely to live

    If you're currently age 65, there's a 10% chance you'll live into your 90s. Planning for a "typical" 25-year retirement might mean you'll outlive your savings.
    If you're currently … 50% chance you'll live past … 25% chance you'll live past … 10% chance you'll live past …
    65 85 91 96
    75 88 92 96
    85 92 94 98
    If you're currently … 50% chance you'll live past … 25% chance you'll live past … 10% chance you'll live past …
    65 82 89 93
    75 86 90 94
    85 91 93 96

    Source: Schwab Center for Financial Research, Social Security Administration

    What else should you consider?

    Other factors beyond your longevity can affect how long your savings last. If you have sources of income such as rental properties or a pension, you won't have to rely on your portfolio to generate as much income, so your savings may be able to last longer.

    If you have unexpected medical bills or a long stay in a nursing home, your savings might not go as far as you thought they would—one reason to at least consider long-term care insurance.

    Last, consider whether you want to leave an estate to heirs or charities. If you do, you'll need to save even more or spend less in retirement.

    Remember, none of us, or our retirements, are "average," and we aren't coin flips either.  It's better to plan for longer, because it's much worse to run out of money early than it is to have some money left over to leave behind. Plan for longer, as most planners do, and don't make the mistake of underestimating how long your retirement could last.

    How Schwab Intelligent Portfolios™ Can Help

    If you've reached your savings objective with your Schwab Intelligent Portfolios account, you can choose an income goal to gradually withdraw from your account over time. The Goal Tracker assumes you don't want to draw your account down to $0 before the end date of your goal—which is why anything less than a 50% chance of your money lasting is considered "off target." Read the Goal Tracker whitepaper to find out how to get back "on target."

    By Rob Williams, Director of Income Planning, Schwab Center for Financial Research

    1. National Academies of Sciences, Engineering, and Medicine. The Growing Gap in Life Expectancy by Income: Implications for Federal Programs and Policy Responses. Washington, DC: The National Academies Press, 2015.

    The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.


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