What do you need to know about human life expectancy? Most of what you see in the newspapers makes little sense in terms of planning.
Wikipedia defines life expectancy as. “Life expectancy equals the average number of years a person born in a given country would live if mortality rates at each age were to remain constant in the future.”
Obviously, mortality rates will not remain constant. Historically they have improved, so based on that, life expectancy will likely increase. No guarantee though. A widespread epidemic could change it dramatically, but not necessarily affect you.
The life expectancy at birth idea is especially useless until you understand infant mortality. If 5% of children die by age 5, there will be a low average life expectancy at birth. If you ask for life expectancy at age 5 over the years you will find that while it has increased, it has not increased as much as life expectancy at birth. True statistics are not necessarily also meaningful statistics.
No one really cares about averages but they can help you plan. If a 60-year-old male is supposed to live 22 years, that means that in 22 years, out of a large group of them, half will have died. It says nothing about which ones have died or when.
There are other important ideas. One of them is joint life expectancy. While a 60 year old male is looking for 22 years of life and a 60 year old female is looking for 27 years, when you combine them, there is a 50-50 probability that at least one of them will be alive in 30 years. And that is without any changes in mortality over the future years.
People need to know that they can easily outlive their plans. Be especially cautious about plans that depend on average life expectancy.
There are three risks in life:
- I die too soon.
- I become disabled
- I live too long
You can insure the first two, but you must plan in order to deal with number three.
Planning is purposeful if it addresses reality effectively. Retirement planning without understanding probabilities of death, and the changes that affect that, is not really planning at all.
There are unexpected discoveries in the mortality table, too. A 10-year-old male has about the same probability of dying in the next year as does a 60-year-old male. The probability of a 30-year-old, insurable, male non-smoker dying in the next 15 minutes is about the same or less than the chances of winning a major lottery. In some countries, male life expectancy is longer than female. Mortality experience in Canada is identical to mortality experience in every other country. One death per lifetime.
The duration of the need for money is important. Make a reasonable assessment and modify your plan as you age.
Don Shaughnessy is a retired partner in an international public accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. Contact: firstname.lastname@example.org