Longevity is the length or duration of your life, and it is important in retirement planning because it determines how long your assets need to support you after you stop working. Underestimating longevity is one of the most consistent mistakes my clients make when thinking about their retirement.
According to a 2012 report from the Society of Actuaries, if a male makes it to 65 there is a 40% chance he will live to age 85 and a 20% chance of living until age 90. A female, on the other hand, has a 53% chance of making it to 85 and a 31% of making it to age 90. And if they are a couple, at age 65 one of them has an almost 20% chance of making it to age 95.
So, to put it in a slightly different context, if you go to work at age 25 retire at 60 and live until 90. You will spend almost as much time retired as you do work, which means longevity is critical in retirement planning. If you do not save enough while working or if you spend too much in retirement you could outlive your resources.
If you would like to learn more about longevity or if you want to get a better idea of your longevity explore the links below.
Longevity Calculator: www.Livingto100.com
All about Longevity – Stanford Center on Longevity: http://longevity.stanford.edu/
Life Expectancy Data – CDC – https://www.cdc.gov/nchs/fastats/life-expectancy.htm
Society of Actuaries Report – https://www.soa.org/files/research/projects/research-key-finding-longevity.pdf
My standard answer is you should wait until age 70, or at least as long as possible. Social Security is an inflation-adjusted annuity that increases (in addition to inflation adjustments) every year you wait after age 62. As a retirement planner, I advocate waiting to help my clients mitigate longevity risk (outliving your money) and the impact of inflation on your living expenses.
The Social Security Administration (SSA) will calculate your payment at your Full Retirement Age (FRA) based upon an adjusted average of your highest 35 years of earnings. FRA has traditionally been age 65 but was indexed in the early 1980’s to recognize longer longevity and to help boost the system. If you apply for SS before your FRA your payment will be discounted, but if you wait it will be increased each year. In my case, since I was born in 1958, my FRA is age 66+ 8 months which is when I will receive 100% of payment. On the other hand, if I apply at age 62 I will receive 72% the payment, and if wait until age 70 my payment will be 127% of my calculated benefit at my FRA.
There are a couple of additional considerations. First, the survivor’s benefit of a married couple is based upon the higher of the two individual payments. So, to maximize survivor benefit (which would keep my wife very happy) it is advantageous to delay the higher of two wage earns to age 70. The second consideration is longevity. The above advice is based on the belief you will lead a full life – the average longevity is into the mid-80’s. If, however, you have health concerns or a family history that suggests impaired longevity, you may be better off applying for Social Security at the earliest date possible.
FRA- Age and Percent Payout: https://www.ssa.gov/oact/ProgData/ar_drc.html
SSA Benefit Calculators: https://www.ssa.gov/planners/benefitcalculators.html
Helping your children navigate the college selection process is probably one of the most important tasks you will do as a parent. Yet, like a lot of decisions in life, it is filled with emotion, frustration, a lack of full knowledge and ultimately parental ego. I have now been through it twice, with my now 24 year daughter and most recently my 18 year old son. And I am proud to admit, my daughter’s college counselor only had to call me twice to ask me to “relax” and to let me know she was on top of her college applications and essays. What I have learned, my thoughts, and my opinions follow. I hope they help you …
- The college decision is highly emotional and can be ego driven… as we all like to hear ‘’Oh that’s a great school” Yet, it is also an investment decision, an investment in human capital that should generate an attractive yield over the long term. One should weight carefully the cost of a particular school versus the potential earnings of the student’s chosen career. Does it make economic sense to pay or borrow up to $200k to prepare for a career that pays $18k per year? Perhaps, there is a more affordable school or a different career path. “Pursuing one’s dream” is an important goal which should be part of the decision process, but there are also economic realities that should be incorporated in the decision.
- Highly selective schools like Harvard, Yale and Northwestern are great goals to strive for, but by definition the vast majority of kids will not get into them. And while I would never discourage a student from striving to get into a selective school, I would recommend their focus should be on a wider range of potential schools based upon their career interests, economic resources and geographic region, with the ultimate goal of selecting a school in which they will thrive. Recent research discussed in the Wall Street Journal suggests that one’s major (especially if STEM related) can have a greater impact on long term financial success than the prestige of the school selected (WSJ: do-elite-colleges-lead-to-higher-salaries-only-for-some-professions). read more…