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53% of Older Americans Make This Miscalculation That Could Destroy Their Retirement

By Maurie Backman - Jan 31, 2020 at 6:18AM

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It's a dangerous misstep for a lot of reasons.

Contemplating our own mortality is by no means an easy thing to do from both a mental and logistical perspective. But it's an important thing nonetheless in the course of retirement planning.

Your projected life span could inform decisions like when to file for Social Security or how much of your retirement savings to withdraw on an annual basis. But new data from the Society of Actuaries (SOA) reveals that more than half of Americans are selling their life expectancy short.

In a survey of adults age 50 or older, 53% underestimated their life expectancy to some degree. And while 25% were off by under five years, the rest of those who miscalculated their life expectancy were off by a much more substantial time frame.

Older man sitting on tree log near lake.


If you don't get your life expectancy correct, you'll risk making bad decisions that can hurt you financially as a senior. And that's a good way to destroy your retirement when you deserve better.

Why you need to get your life expectancy right

The SOA estimated the average life expectancy among those surveyed at age 86 1/2. That's slightly more optimistic than the numbers the Social Security Administrations (SSA) is currently putting out. The SSA says that a man who turned 65 in 2019 can expect to live until age 84 on average, while a woman who turned 65 last year can expect an average life span of 86 1/2, which mimics the overall estimate from the SOA.

Of course, without a crystal ball, it's impossible to predict how long you'll live. But it's important to get a reasonably accurate handle on that figure for a couple of reasons.

First, when it comes to claiming Social Security benefits, your life span should play a role in determining the age at which you file. You can file at full retirement age -- either 66, 67, or somewhere in between -- and receive the full monthly benefit your earnings history entitles you to. Or, you can file as early as age 62 but reduce your monthly benefit by claiming it ahead of full retirement age.

Delaying benefits is also an option, and a valuable one at that. For each year you hold off past full retirement age, you can score an 8% increase in your monthly Social Security income.

Now, the interesting thing about Social Security is that it's designed to pay you the same lifetime total regardless of when you initially claim benefits -- but that only applies if you live an average life span. If your health is great, and you're expected to live a longer life, delaying benefits could give you a higher lifetime total in Social Security income. But if you don't have an accurate handle on your life expectancy, you'll risk claiming benefits at the wrong age and losing out on lifetime income in the process.

Your life expectancy could also impact the rate at which you withdraw from your retirement savings as a senior. If you retire in your mid-60s, you may feel safe removing 5% or 6% of your savings balance each year in anticipation of living until your late 70s. But if you end up living until your mid-80s and draw down your balance too quickly, you could wind up in serious financial trouble due to that misestimation.

That's why when it comes to retirement, it often pays to err on the side of optimism. In many cases, you're better off assuming you'll live a bit longer so you're motivated to not only pad your savings, but withdraw from your nest egg more conservatively.

Another thing: The SSA estimates that roughly 1 out of every 3 65-year-olds today will live past the age of 90, and about 1 in 7 will live past age 95. While these clearly aren't averages, it's good information to keep in the back of your mind, especially if you go into retirement with solid health.

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