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Jean Chatzky says a lot of people plan retirement around the wrong number: how long the average American lives. In her new book, “The Forever Paycheck,” she writes, “But looking at longevity from birth … is a very dangerous thing to do, at least financially.” (1)
She’s right, and I’d underline it twice. I’ve been a CPA since 1981, and in my view this is one of the costliest mistakes you can make in retirement math.
Here’s why. Life expectancy at birth includes everyone who dies young. If you’ve already made it to 65, the odds shift in your favor, and you need your money to last longer than you think.
The CDC puts U.S. life expectancy at birth at 79.0 years for 2024. (2) But Social Security’s actuaries say a man who reaches 65 can expect about 18 more years, and a woman nearly 21 more. (3)
And a lot of people go well past the average. According to the same Social Security life table, about 1 in 4 men and more than 1 in 3 women who reach 65 make it to 90. (3)
Here are five ways to plan for the number that really matters.
1. Use your life expectancy at 65, not at birth
Social Security’s 2023 period life table, used in the 2026 Trustees Report, puts life expectancy at birth at 75.8 for men and 81.1 for women. (3)
But a 65-year-old man can expect about 18.1 more years, to roughly 83. A 65-year-old woman can expect about 20.7 more, to nearly 86. (3)
That’s about seven extra years of bills compared with the “from birth” number for a man, and nearly five for a woman.
2. Married? Plan for at least one of you to reach 90
Averages are just that. Plenty of people live well past them.
Using Social Security’s table, about 24% of 65-year-old men and about 35% of 65-year-old women will reach 90. (3)
Run those odds for a 65-year-old husband and wife together, and my rough math (treating each spouse’s odds separately) says there’s about a 50-50 chance at least one of them gets there.
That’s why, if you’re married, I’d plan your money to last to age 90 at a minimum, and to 95 if you’re in good health and have long-lived parents.
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3. Treat Social Security as longevity insurance
Here’s where the longer-life math changes a big decision. If you claim Social Security at 62 and your full retirement age is 67, your check is reduced by 30%. (4)
Wait past full retirement age, and you earn delayed retirement credits of 8% a year, until the increase stops at age 70. (5)
In my view, if you expect to live into your late 80s or 90s, a bigger check that lasts as long as you do can be worth more than a smaller one that starts early. Run your own numbers before you file.
Quick gut-check — if your money advice is coming from random online influencers, you’re playing a dangerous game. I’ve been a CPA since 1981 and writing about money since before the internet existed. Sign up for the free Money Talks Newsletter and get expert advice that’s been tested by time.
4. Plan for the care that comes with a long life
Living longer is the goal. But more years usually means more need for help.
Someone turning 65 today has almost a 70% chance of needing some type of long-term care, according to the federal Administration for Community Living. (6)
Medicare doesn’t cover custodial care — the day-to-day help with things like bathing and dressing. Long-term care insurance helps fill that gap, covering services like home care, assisted living, and help with daily tasks.
Rates are typically lowest if you buy in your 50s or early 60s, and couples often qualify for discounts. See a list of the best LTC insurance companies — takes 2 minutes.
5. Count your house as part of the plan
If you own your home, it may be one of your biggest assets. If a long life stretches your savings thin, your home equity can be a backstop.
If you’re 62 or older, the equity in your home could become cash you can use now. A reverse mortgage lets eligible homeowners convert part of their home equity into funds — while keeping ownership of their home.
It can free up your monthly budget with no required monthly mortgage payment, though you still have to pay property taxes and homeowners insurance and keep the house in good condition. (7) See how a reverse mortgage works and whether you qualify.
A reverse mortgage isn’t for everyone, and it carries real costs. Compare it carefully with downsizing or other options.
*A reverse mortgage still requires borrowers to pay property taxes, homeowners insurance and home maintenance. The loan must be repaid when the home is sold or the last borrower leaves the home.
My honest take
Chatzky has put her finger on a quiet retirement killer. Running out of money at 85 is far worse than dying with some left over.
So plan as if you’ll live a long time. If you’re wrong, your heirs inherit more. If you’re right, you’ll be very glad you did.
Sources: 1. TheStreet; 2. CDC; 3. Social Security Administration; 4. Social Security Administration; 5. Social Security Administration; 6. Administration for Community Living; 7. Consumer Financial Protection Bureau
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