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Long Live the Queen and I!

Anyone who has tried to do a conscientious job of preparing for retirement has probably run up against an important question that has no knowable answer, a kind of zen koan of financial planning: How long can you expect to live?

If I were royalty, I'd sure expect a long life. At 81, Queen Elizabeth is still going strong. Her mom, the former Queen Mother, lived to be 101. Now that's life expectancy! But should I expect that kind of lifespan?

Crunching the numbers
The question can be important to not only saving but also spending in retirement. You don't want to assume you'll only be around for a decade, only to find yourself a penniless 95-year-old, bagging groceries at the supermarket to pay for prescription drugs.

Of course, life insurance companies like MetLife (NYSE: MET  ) and Allstate (NYSE: ALL  ) hire actuaries to crank through the statistics to make their own estimates. When you look at life expectancy tables, they tell us that the average person will live for 77.9 years. You'll probably be around a little longer, until age 80.8, if you're a white female. A white male can shave a few years off that assumption and presume he'll be here for 75.7 years.

That number only tells you what's average. We know -- from your unique fondness for '80s alternative rock bands to your preference for barbecue sauce on macaroni and cheese -- that you're anything but average. A million other factors will influence your life expectancy, including your family. If most of your ancestors lived to the ripe old age of 95, smoking and drinking like sailors along the way, you can probably assume you'll be around for a long time yourself.

In addition to your genetics, a host of other factors push and pull the levers that will determine how long you live. How's your health? Do you smoke? Do you succumb to the temptation of a cheese steak and fries with extra cheese every week, or just occasionally? Do you wear your seatbelt? Floss? Have a nasty habit of falling off your bicycle in the middle of traffic every time you go out for a ride?

While they're certainly no crystal ball, running your own statistics through several Internet life expectancy calculators can give you a rough idea of whether you can expect to fall above or below the average life expectancy. (They may also give you some ideas for stretching out your time before shuffling off this mortal coil.)

How to plan
But still, no one ever really knows how long they'll stick around. When it comes to retirement planning, you can take several approaches to this question.

Assume you're average. If you were a C student all through school, you've always been of average height and weight, and your cholesterol and blood pressure look normal at every doctor's appointment, you might be tempted to assume you'll live to the average age -- no more, no less.

Planning this way may protect you from overestimating your life expectancy. You'll be less likely to stuff away a lot of money that you'll never use yourself but will pass along to your heirs. Assuming you're just average, however, introduces the risk that you'll underestimate your life expectancy. Tweak one or two factors in the roulette of life expectancy, and you could find yourself running out of money but not running out of energy to keep golfing and traveling through your 80s.

Assume you'll live forever. OK, maybe you shouldn't assume you'll live forever. But, if you plan your retirement like you'll live to be 100 years old, you'll be much less likely to run out of money. You minimize the risk of underestimating your retirement needs.

This may also be a helpful way to think when you consider why we're living longer and longer. Health advances keep our hearts ticking and our lungs breathing. But health advances, when it comes to treating old age, can also be expensive. Assuming you'll live to be one of those 100-year-olds who gets their picture on morning talk shows can build a cushion into your retirement fund that will cover your health expenses in later life.

Be sensible
However you decide to plan your retirement savings, you can also practice good defense and withdraw money in retirement at a rate that will minimize the chance that you'll outlive your bank accounts. The experts at the Rule Your Retirement newsletter recommend withdrawing no more than 4% of your portfolio in each year of retirement to maximize the chance that your nest egg will survive the ups and downs of the stock and bond markets. Take the newsletter for a free spin if you're interested in the nitty-gritty details of portfolio preservation.

Then, eat your leafy greens, floss your teeth, and get your cholesterol checked. We want to see you alive and managing a healthy retirement portfolio for many more years.

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Fool contributor Mary Dalrymple has been known to fall off her bike into traffic on more than one occasion. She doesn't own shares of the companies mentioned in this article. She welcomes your feedback. The Motley Fool has an ageless disclosure policy.


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