7 Lazy Mistakes We Make With Life Expectancy
1. 4% is the average
We forget that life expectancy is an average. Only 4% of the population will die at the statistical life expectancy. Out of a random pool of 1,000 60 year old men, only 40 will die around 83, the life expectancy for that group. So what happens to the other 960? Well they will obviously die before and after.
From a planning perspective, we need to pause and reflect on this for a minute. If you are 60 and planning for the journey ahead, which half are you going to aim for? Which side of the number do you think you will land on? Are you an optimist or a pessimist?
Most of the people I have ever asked this question of say they would plan for the optimistic (conservative) end of their life expectancy range. I agree. You need to assume you will live longer than your life expectancy. Getting the maths of your retirement wrong can have substantial life consequences.
2. Life expectancy and the property market
Life expectancy is such a large and homogenised average that it is a meaningless number. Similar to conversations of “the property market”.
“The Australian property market” has nothing to do with how your 2 bedroom apartment in Randwick is behaving. Your property experience is very much personalised and very local. Such is life expectancy.
As with property there are hundreds of sub markets (sub groups) that make up the average but have no resemblance to it. The smallest variances in lifestyle, health and genes can change the life expectancy outcomes for your sub group dramatically.
3. False expectations
If you are a healthy person living a healthy lifestyle, then current life expectancy tables are probably setting false expectations for you about the future. If you:
• Don’t smoke
• Don’t eat junk food and eat well
• Sleep well
• Exercise or walk the dog
• Have low cholesterol and low blood pressure
• Have genetic predisposition to longevity (parents and grandparents lived long lives)
Then life expectancy tables have nothing to do with you. You are likely to outlive the number by possibly 10-20 years!
4. Living forever
If you are female with all of the above factors in your favour, you are likely to outlive your male partner by a very long time. Current life expectancy for the subgroup of healthy females with genetic predisposition is well over 100 (as high as 108). This is the modern day definition of living forever.
If you are a 60 year old female with a good chance at living to 105, how are you going to plan for that? What are you going to do to make your money and more importantly your financial independence last that long?
5. Longevity is not life expectancy
How long you are going to live and what the “average” for your sub group is, are two very different things. Plan and think about your longevity, not your life expectancy.
6. A couple are NOT two individuals
From a life expectancy perspective, a couple is one life expectancy unit. This means that a 60 year male might have a 1 in 4 chance of getting to 90 and his wife might have a 1 in 3 chance of getting to 90 but much more importantly one of the “unit” has a 1 in 2 chance of getting to 90.
Put another way, a 60 year old couple has a 50/50 chance of one of them getting to 90. “They” need a 30 year plan as a minimum.
7. Your life expectancy is always moving
As you take a step closer towards your life expectancy, it takes a small step back away from you. A 60 year old male has a life expectancy of 22.6 years. But as he walks towards it for 10 years at 70 his life expectancy will be 14.7 (not 12.6 which is what it was 10 years earlier) and after another 10 years at 80 his life expectancy is 8.3 (not 2.6) and so on.
Every extra year you survive means you have a bit further to go.
We are in unprecedented times. No other group of humans in the history of humanity have had to solve the problem of financial independence for these lengths of times.
Wide spread misunderstanding of how long we are going to live and what the numbers actually mean will have significant and profound consequences for us individually and for policy nationally.
Frank Paul is Chief Operating Officer & Head of Advice Services with Spring Financial Group. Frank has over 20 years' experience in financial planning and investment advisory.
|Frank has extensive experience in private client advising and the management of financial services operations. Frank is actively involved in the recruitment and management of advisory personnel and heads the advisory panel. He holds a Master of Commerce (Financial Planning) and a Dip. Financial Planning and has authored literally dozens of financial education publications.|