Why You're Probably Underestimating How Long You'll Live (and Why It Matters for Your Money)

When it comes to retirement planning, one of the most common mistakes people make has nothing to do with their investment strategy or savings rate. It's a fundamental misunderstanding of how long they're likely to live.

If you've heard that life expectancy in the U.S. is around 78 years, you might assume that at age 65, you only need to plan for about 13 more years. But that math is completely wrong, and it could leave you running out of money in retirement.

The Real Numbers:

Life Expectancy in the U.S.

According to the Centers for Disease Control and Prevention's most recent data, life expectancy at birth in the United States is 75.8 years for men and 81.1 years for women. But here's where most people get confused: those numbers don't tell you how long you'll live if you've already made it to retirement age.

For a 65-year-old man, the average life expectancy is another 18.2 years, meaning he can expect to live to about age 83. For a 65-year-old woman, it's another 20.7 years, putting her average lifespan at nearly 86.

That's a big difference from what many people assume when they hear "life expectancy is 78."

Why Life Expectancy Changes as You Age

Here's a simple way to understand why life expectancy increases once you reach 65.

Think about the average of all numbers from 0 to 100. It's 50. Now, what's the average of just the numbers from 40 to 100? It jumps to 70.

Life expectancy works the same way. The "life expectancy at birth" figure includes everyone who dies young, whether from accidents, illness or other causes. But once you've already made it to 65, all those early deaths no longer apply to you. You're now part of a smaller, longer-lived group.

That's why a 65-year-old woman with a life expectancy at birth of 81 years can actually expect to live until about 86. Her future life expectancy is nearly 21 more years, not the 16 years you might calculate by subtracting 65 from 81.

Why This Matters for Your Retirement Plan

If you're building a retirement plan based on the assumption that you'll live to your mid-to-late 70s, you could be setting yourself up for trouble. The average 65-year-old will live well into their 80s, and many will reach their 90s.

Running out of money at 85 when you live to 95 is a real risk that too many retirees don't adequately plan for.

When creating your retirement plan, consider these factors:

Your starting point matters. Life expectancy at birth is not the same as life expectancy at retirement. If you've already made it to 65, the averages shift significantly in favor of a longer life.

Individual factors vary. Life expectancy tables differ by gender (women typically live about 2.5 years longer than men at age 65), health history, lifestyle and family history. If your parents and grandparents lived into their 90s, you might want to plan accordingly.

Uncertainty is the only certainty. Even with all the statistics in the world, your actual lifespan remains unpredictable. Your financial plan needs to account for this uncertainty rather than betting on a single number.

The Couple Factor:

Why Married People Need To Plan Even Longer

Here's where it gets even more interesting for married couples.

Consider a 65-year-old couple where the husband has a life expectancy of 18 more years and the wife has a life expectancy of 21 more years. How long should the couple plan for? Most people guess 21 years, thinking they need to plan until the longer-lived spouse passes away.

But the actual answer is longer than 21 years.

Why? Because life expectancy is an average, meaning roughly half of people live longer than that number. The wife with a 21-year expectancy has about a 50/50 chance of living beyond that. And the husband with an 18-year expectancy still has a chance of living past 21 years, even if it's less than 50%.

When you combine those probabilities, there's a greater than 50% chance that at least one member of the couple will live beyond 21 years. That pushes the average "time until second death" beyond the longer individual life expectancy.

Actuaries call this "joint and last survivor" life expectancy. It's the number that really matters for couples because you need to provide for whoever lives longest, regardless of which partner that turns out to be.

A Free Tool to Estimate Your Longevity

The American Academy of Actuaries and the Society of Actuaries created a free online tool called the Longevity Illustrator. You can find it at http://www.longevityillustrator.org and It's one of the best resources available for getting a realistic picture of how long you might live.

The tool asks just a few questions about your age, gender, health status and smoking habits. These four factors account for a significant portion of individual variation in longevity. Based on your answers, it generates projections using Social Security Administration mortality tables, with adjustments to account for improvements in life expectancy over time.

The Longevity Illustrator provides "Planning Horizon" numbers at different probability levels. Here's how to interpret them:

The 50% numbers represent your life expectancy, the point at which half of people like you will still be alive, and half will have passed. This is your starting point for planning, but not where you should stop.

The 25% numbers show how long you'd need to live to outlast three-quarters of people in your demographic group. This is a more conservative planning target.

The 10% numbers reveal the age that only one in ten people like you will reach. If you want to be highly confident you won't outlive your money, this is the number to plan around.

For couples, the tool shows four key numbers:

Your individual life expectancy, your partner's individual life expectancy, your "joint and last survivor" expectancy (how long until the second death), and your "joint" expectancy (how long both of you are likely to be alive together).

How to Use this Information

Understanding life expectancy correctly can help you make better decisions about:

Social Security timing. Delaying benefits until age 70 becomes more attractive when you realize you might live longer than you thought. Each year you delay, your benefit increases by about 8%.

Retirement savings. You may need your money to last 25 to 30 years or more in retirement, not 15 or 20. This affects how much you need to save and how you invest.

Annuity decisions. Products that provide guaranteed lifetime income become more valuable when you account for longevity risk. When insurance companies price annuities, they actually assume you'll live beyond average life expectancy to give themselves a margin of safety.

Withdrawal rates. The traditional 4% rule was designed for a 30-year retirement. Make sure your withdrawal strategy matches your realistic life expectancy.

Final Thoughts

Life expectancy is both uncertain and typically underestimated, especially for couples. A 65-year-old man today can expect to live to 83 on average, and a 65-year-old woman to nearly 86. But remember: Those are just averages. Half of retirees will live even longer.

Don't let a misunderstanding of basic statistics derail your retirement security. Take a few minutes to run your numbers through the Longevity Illustrator. The results might surprise you, and they could change how you think about your entire retirement plan.

When in doubt, plan for a longer life. Running out of money is a far worse outcome than leaving a little extra behind.

Clark Howard is a nationally syndicated talk show host who focuses on helping you save more, spend less and avoid getting ripped off. A listing of all the radio stations that carry his show can be found at http://www.Clark.com in addition to his podcast The Clark Howard Podcast and his YouTube channel.