Plan to Live Longer Than You Expect to Live

Prudent retirement planning requires using a planning horizon longer than your life expectancy.
In prior posts we have recommend using the Actuarial Longevity
Illustrator and the three-step process outlined in our Advisor Perspectives article to select your household lifetime planning
period(s). In this post, we will once again discuss the importance, in
planning and retirement decision-making, of focusing on how long you
plan to live, not on how long you expect to live. Retirement financial planning involves comparing household assets with household spending liabilities. We encourage calculating your Funded Status annually, defined as the present value of household assets divided by the present value of household spending liabilities.If
you plan to live longer than your life expectancy for purpose of
determining your household spending liabilities (and as noted above, you
should) and your health is not poor, you should consider allocating
part of your retirement portfolio to assets that reward longevity—such as pensions, delaying Social Security, or purchasing life annuities. These assets typically increase your Funded Status
because they raise the present value of your assets relative to your
spending liabilities through mortality credits and longevity protection.We
frequently see “break‑even” analyses for Social Security deferral or
other lifetime income products. These analyses generally ignore the liability side
of the equation and the need to plan for a longer‑than‑expected
lifetime.  As noted above, evaluating retirement assets should be based
on how long you plan to live, not how long you expect to live.