Life Span: Retirement Planning's Missing Link

Retirement planning would be easy if you knew exactly how long you were going to live. While this variable in your retirement calculator is unknown, it is not unpredictable. The question is whether these predictions are worth anything.

There are several methods by which you could make an educated guess as to your lifespan.. First there are simple actuarial tables. These are the tables used by life insurance companies and while they are fairly accurate for groups of people, they are probably not as accurate for individuals. Then there are more detailed calculators like the Northwest Mutual Life Insurance Company's Lifespan Calculator and MSN's Life Expectancy Calculator.

The results vary widely. The actuarial tables suggest I'll live 26.83 more years or until almost 80 years of age, while Northwest Mutual's calculator has me living until age 90. Best of all, according to MSNs calculator, I'll live to age 93. While I don't care much for MSN's products, I really like their calculator!

So how should you plan your retirement? As you can see these lifespan estimates aren't very helpful. If you had my numbers would you need your retirement money to last only until age 80 or all the way to age 93? My suggestion is to use a wide variety of calculators and then shoot for lifespan somewhere in the middle of the estimates.
.
In addition, it helps to live in your retirement as frugally as possible and to leave a little cushion in your retirement calculations such as excluding some (or perhaps all) of the equity value of your home in your net worth. That way if you live to the ripe old age of 100 or more, you can take out a reverse mortgage to fund your gravy years.