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Don't Forget About Life Expectancy When Planning For Retirement

There’s a lot of variability when it comes to planning for retirement. If you’re a 20, 30 or even 40-something plugging away at your day job, you’ve probably entered your information into a retirement calculator once or twice just to see what came up. It’s always fun to think about retirement no matter how far away it might seem. But tools like this are useful for more than just day dreaming.

Retirement calculators can be very helpful when it comes to figuring out what ‘your number is’ for retirement. They help answer questions like: How much money do you need to save up before you can safely start withdrawing in retirement and how much money do you need to save every year before you can start spending it all?

Related: How Much Do I Need To Save for Retirement?

The answers will depend on a lot of things but in order to even get to that point, there are certain assumptions that you’ll need to make.

Stock Market Returns

Since its inception, the stock market has returned 10% per year, but there’s no guarantee that that trend will continue. As a whole, we expect greater returns from equities since we are taking on more risk than fixed assets like CDs and bonds.  But even which decade you’re born into could end up affecting your overall returns.  Not all retirement planning services provide a range of estimated portfolio returns but some, like SmartAsset, allow you to compare several scenarios.

Generally, it’s safest to err on the side of conservatism. You could assume 8% portfolio returns but that could put you in a very bad position if the market only ends up returning 5% over your lifetime and you want to retire at the age of 65.

In fact, most people assume that 65 is the age they’ll finally get to retire – but what if your portfolio hasn’t reached it’s magical number by that time?  You’ll be forced to either live on less money than you anticipated or continue working for a few more years.

Life Expectancy

A safe withdrawal rate is one that once you save up X amount of dollars you can withdraw X amount per year and have a very good chance of never running out of money. But most of this analysis is based on an average life span (SmartAsset looks at funding your retirement through age 95).  It’s important to consider your family history since we know that that is one of the best predictors of life expectancy.

Even though people in general are living longer these days, family history still takes priority over everything else. If your family has a history of living until their mid 60s you might be more inclined to increase your withdrawal rates when you retire and decrease as you get older. On the other hand, if your family has a history of aunts and uncles living until their 90s you know that you’ll need to plan for that.

Save for Retirement Early and Often

No matter what your life expectancy is, it’s a moot point if you don’t start saving early and often.  Even if you know about the power of compounding interest, it’s so easy to trade instant gratification (new car, bigger house, etc) for delayed gratification (larger retirement balance in 30 years, financial security, etc) since retirement is so far away for most of us.

Related: How Should I Save for Retirement?

As a society, we’ve done a poor job of educating our young people about the importance of saving and investing smartly for retirement. But that doesn’t mean it’s too late. No matter what age you are, it’s always a good idea to employ smart saving habits and invest wisely for your retirement.

Photo Credit: willumjams

Harry Campbell Harry Campbell is an aerospace engineer by day and personal finance blogger by night. He runs his own personal finance blog at Your PF Pro and is a freelance writer. Harry's expertise includes retirement, credit cards, home buying, higher education and side hustles like ridesharing. His work has been featured on Zillow, Credit Karma and CreditCards.com. Harry currently resides in Newport Beach, CA and enjoys biking and playing beach volleyball in his spare time.
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