Life expectancy is a single number, derived from a single set of assumptions, and its usefulness is limited. It is not a guarantee that you will live exactly that long, but simply the number of years that people your age and gender might expect to live on average. While a few people will undoubtedly live to their exact life expectancy and no longer, most people will live either a shorter or longer period of time - very possibly a significantly shorter or longer period of time. Although no one wants to be the person who lives for fewer years in retirement than expected, there is a significant financial risk involved in living longer, especially if your retirement income is not guaranteed for life (as might be the case for assets you draw down yourself from your savings). Therefore, it is very risky to rely on the life expectancy number when planning your retirement.
This ALI enables you to see a much larger picture than a single life expectancy number. The tool estimates the likelihood that you will live for various lengths of time. Further, this analysis goes one step further and analyzes longevity for couples. That is, the ALI lets you consider longevity as it affects your retirement as a couple, not just as individual partners. The ALI ’s charts show the likelihood of the couple both living a given number of years as well as the likelihood that one of you will outlive the other. All of this information is crucial towards planning a secure retirement.
The ALI will help provide you with additional perspective. If you consider your retirement plan assuming that you will live only as long as your life expectancy, you may run out of retirement funds if you live longer than expected. (And there is a reasonable chance you will!) On the other hand, if you consider a retirement plan assuming you will live to 110, you may find yourself without adequate income in your retirement years. The question to consider is how much comfort you want to have such that you will not exhaust your savings as you age.
This tool is meant only to help you analyze your retiree financial longevity risk and does not consider financial aspects of your retirement planning. Using the ALI is just a starting point to help you consider your options for a secure retirement.
The projections shown in the ALI are based on 2019 mortality tables used by the Social Security Administration in the annual Trustees’ Report that was released in the June 2022. There are separate rates for males and females.
Because mortality rates show a long-standing trend of improving, the ALI is based on the assumption they will continue to improve according to the MP-2021 rates published by the Society of Actuaries in the fall of 2021. These improvement rates are applied to the 2019 Social Security mortality tables to project mortality rates to future years.
Additional adjustments are made for health status ranging from 75% to 150% depending on age and for smoker status ranging from 69% to 233% depending on age. The combined adjustment factors range from 52% to 349%, depending age, health status and smoking statuses.
In addition to those considered in the ALI, longevity depends on many factors. These include: availability and access to health care, current medical conditions, exposure to environmental toxins, family history, geography, income, lifestyle and occupation. While these all affect longevity, many of them are reflected in your health status. The four factors chosen for the ALI (age, gender, smoking and health) have been shown to account for a significant amount of the individual variations in longevity. While these four pieces of information have been shown to produce reasonable approximations of an individual’s longevity*, you or your spouse/partner’s actual lifetime can differ significantly from these estimates, either above or below.
* Society of Actuaries, 2015 Valuation Basic Report, Sept. 13, 2018, https://www.soa.org/resources/experience-studies/2015/2015-valuation-basic-tables