life expectancy

[lazyday]

I am not as optimistic on the rapid growth of life expectancy -- it looks more asymptotic to me,

But discontinuous innovation might break that curve.

For many years, improvements in TV image quality were probably asymptotic, to something like the quality of a 480i DVD on today's best TV. When HDTV came around, the curve shifted in a big way.

Or maybe max travel speeds, as railroad improvements were made over the years, then suddenly there was the airplane.

 

[kcowan]

...In a related question: What is the standard deviation of life expectancy once you reach age 65 (particularly for a male)?

This is important to know for any financial modeling that you do. I couldn't find good data on this and so I had to guess this number for my Monte Carlo financial simulator.

Kramer

I know that much retirement planning involves guessing how long we might live. Most actuarial tools tend to lump everyone together into a median age regardless of lifestyle difference.

The best one that I have found so far is from Wharton, because it considers many of the same lifestyle factors that insurance companies include. I also like it because it gives the lower and upper quartiles for a range of projected lifetimes.

I am interested in your reactions to this tool. And especially the spreads to lower and upper quartiles. It caused me to be more conservative regarding how long my money needs to last.

(Now if I could just get the upper decile! Here is the long form of the hotlink above:
http://gosset.wharton.upenn.edu/~foster/mortality/perl/CalcForm.html)

 

[Cut-Throat]

Took the Quiz and I came out to age 88.5

What was interesting to me is that if I became a 'conditioning exerciser' instead of just the moderate one that I checked, I would only live 6 months longer. So If I did this over a period of 30 years, I would probably have to spend 2 years exercising to live about 6 months longer - No thanks! - Back to the couch!

 

[Nords]

PBS Frontline ran a program on aging recently.
http://www.pbs.org/wgbh/pages/frontline/livingold
Have a look. Consider that in 2030, over 25% of the US population will be over 65 yrs old. Right now we care for a MIL in a nursing home. She's 82 and happy. My parents are still living on their own; but starting to have mobility issues.
This program is an eye-opener about longevity and our expectations.

Spouse saw that tape last night-- at bedtime she was still shaking and muttering "Just shoot me!"

I think Frontline went for max pathos & drama. Having discounted that, I also think that a lot of the people profiled have all but given up-- "It's in God's hands now" seemed to be the prevailing attitude. While I can understand that rationale, I'm still in the camp where God expects a little personal effort.

I'm not so sure that 78 million Boomers will feel that the decision is beyond their control, assuming that they're not still chained to their cubicles supplementing their Social Security and their Starbucks lifestyles. I think most of us are in denial fighting all the way, either into an early grave (misconduct not in the line of duty) or by expecting technology & healthy lifestyles to boost us to 11-12 decades.

And in the next couple decades voluntary euthanasia will become an innocuous personal choice, not a pitched legal battle. "Would you like CO2 or Oxycontin with that healthcare directive?"

 

[kcowan]

Took the Quiz and I came out to age 88.5

What was interesting to me is that if I became a 'conditioning exerciser' instead of just the moderate one that I checked, I would only live 6 months longer. So If I did this over a period of 30 years, I would probably have to spend 2 years exercising to live about 6 months longer - No thanks! - Back to the couch!

I think the thing about exercise is that improves the quality of life as we go - fewer aches and pains. And if you suddenly lift something heavy, you might damage something. But as for living longer, no it seems only to influence living better.

I did some curve fitting to the bell curve (normal distribution) and came up with a std. deviation of .48 so that you can estimate your 10%ile and 90%ile as follows:
where LE = Life Expectancy
90%ile=LE+1.902*(75%ile-LE)
10%ile=LE+1.902*(25%ile-LE)

The spread is much broader than I would have guessed. So for me there is a 10% chance I might last until 115 if I outlive 90% of the comparable population! Looks like Smuckers is going to be busy with birthday greetings! Plus I need to rethink the risk in the SWR.

 

[Nords]

What was interesting to me is that if I became a 'conditioning exerciser' instead of just the moderate one that I checked, I would only live 6 months longer. So If I did this over a period of 30 years, I would probably have to spend 2 years exercising to live about 6 months longer - No thanks! - Back to the couch!

What kcowan said.

Now that my knees no longer swell up at the slightest provocation I've started morning stretching. I used to regard it as a colossal pain in the neck because it was much easier to stumble downstairs, plop in front of the computer, and see what was happening in the world.

After just two weeks of just 15 minutes each morning I can do full squats again and I've even been honing my tae kwon do forms for another 10-15 minutes. I'd call that a huge quality-of-life improvement, and I'll spend a lot less $$ getting to that black belt too.

I wonder how many of those Frontline complaints could have been avoided by a few years' daily stretching in their 50s & 60s.

 

[Cut-Throat]

What kcowan said.

Now that my knees no longer swell up at the slightest provocation I've started morning stretching. I used to regard it as a colossal pain in the neck because it was much easier to stumble downstairs, plop in front of the computer, and see what was happening in the world.

After just two weeks of just 15 minutes each morning I can do full squats again and I've even been honing my tae kwon do forms for another 10-15 minutes. I'd call that a huge quality-of-life improvement, and I'll spend a lot less $$ getting to that black belt too.

I wonder how many of those Frontline complaints could have been avoided by a few years' daily stretching in their 50s & 60s.

I have no aches and pains either. The point was moderation. I was talking about the minimal advantage from moderate to high exercise rates. Again Balance! - We seem to be an all or nothing society here! :

 

[audreyh1]

I think the thing about exercise is that improves the quality of life as we go - fewer aches and pains. And if you suddenly lift something heavy, you might damage something. But as for living longer, no it seems only to influence living better.

That's ultimately why I exercise! But I think moderate exercise should be sufficient.

Three years ago I started learning yoga, and part of it was that I figured it would be one of the more important skills/practises as I got older. Maintaining balance, flexibility, and muscular strength has got to go a long way to keeping quality of life good. I still consider it moderate rather than conditioning.

And then there's the bit about 3 hours of moderate aerobic exercise per week increasing brain size in older people - WOW!

Audrey

 

[JJac]

I think the whole concept of life-cycle asset liquidation as currently practiced and promoted by retirement calculators and "financial planners" is seriously flawed.

I've always been interested in money and paid attention to how people made their livings, and I will say that of all the people that I knew about-- grandparents, parents, aunts, uncles, etc- nobody voluntarily liquidated their savings in a planned way.

Before I heard of the FIREcalc, I had this same perspective. I have also always been interested in money, although all of my grandparents, parents, etc... didn't have any savings so there was nothing to liquidate

But the idea of eating into the principal at any point was alien to me. To determine my safe withdrawal rate, I built a model with the following assumptions:
- annual inflation of 3%
- annual 5.63% return on equity (the going rate on CDs according to Bankrate)
- interest would only be earned on the final value from the previous year (no partial year interest)
- spending grew only with inflation
- health insurance increased at 8% a year
- Principal could not decline until age 100
- All growth would be taxable annually (invested only in taxable bonds) except the funds in an IRA

I figured this was about as conservative as I could get, and I didn't want to be 90 years old and run out of money. I wouldn't actually invest this way, but I figured I wouldn't do worse than this. Of course, inflation and interest rates would change, but I figured as long as interest rates were 2.63% greater than inflation that my model was close enough.

The key point though is that I wanted to insure that I would live only off of the interest until age 100. This conservative investment approach allowed me about a 2.3% withdrawal rate at 35. With this 2.3%, I need to pay health insurance, taxes, and cost of living. (The swr grew to 3% at age 70 as medical insurance costs grew. At age 100, it reached 6% and thus my withdrawal the following year would start to eat principal.) I considered age 100 to be the end of the road.

In summary, I was surprised that the withdrawal rate proposed by FIREcalc was as high as 4%.
To be completely "safe" I want something more, and that entails keeping the principal sound.

So even after hearing of FIREcalc, I stand by my original viewpoint. Although it is an interesting way to validate assumptions. I figure if I plan for the worse and the original principal goes up in a big way, then that is party money Even a 0.1% change in interest rate delays eating principal for 13 years.

 

[Cut-Throat]

So even after hearing of FIREcalc, I stand by my original viewpoint. Although it is an interesting way to validate assumptions. I figure if I plan for the worse and the original principal goes up in a big way, then that is party money Grin Even a 0.1% change in interest rate delays eating principal for 13 years.

Of course the big problem with line of reasoning is that by the time you realize it's 'party money' you'll be far too old to party! - Don't save Sex for your old age!

The people that ran out of money age age 90, probably ran out of money at age 55. No one wakes up at age 90 and runs out of money. The signs are there 30 years in advance of that.

 

[donheff]

I know that much retirement planning involves guessing how long we might live. Most actuarial tools tend to lump everyone together into a median age regardless of lifestyle difference.

The best one that I have found so far is from Wharton, because it considers many of the same lifestyle factors that insurance companies include. I also like it because it gives the lower and upper quartiles for a range of projected lifetimes.

I am interested in your reactions to this tool. And especially the spreads to lower and upper quartiles. It caused me to be more conservative regarding how long my money needs to last.

I think it is a bad idea to plan withdrawal rates that allow depletion of the portfolio over an estimated likely lifetime. Improving the estimate with a bunch of health related data merely amplifies the illusion of safety. We really need to plan on the longest potential lifetime because we may be surprised by beating the odds. If we believe Ray Kursweill could be right, that potential lifetime needs to effectively be perpetuity.

 

[JJac]

Don't save Sex for your old age!

If anything, the amount of sex I have now is likely to give me a fatal heart attack sooner

Of course, I also don't want to run out of money at age 55. I get your point though, and it is making me do some self-reflection. I'm incredibly anal so it takes time

 

[youbet]

I think it is a bad idea to plan withdrawal rates that allow depletion of the portfolio over an estimated likely lifetime.

Don, does this mean you don't accept Firecalc's testing? Firecalc considers any year you don't run out of money a "success."

Or are you saying that you plug a large number into the number of years of retirement slot?

 

[sgeeeee]

Don, does this mean you don't accept Firecalc's testing? Firecalc considers any year you don't run out of money a "success."

Or are you saying that you plug a large number into the number of years of retirement slot?

You can use FIRECalc to calculate a SWR required to maintain a portfolio balance. Simple enter a 1 time withdrawal equal to the original portfolio value in the final year of the simulation. For a 30 year portfolio (50/50 stock/bond allocation) the safe withdrawal rate falls to about 2.75% if you want to satisfy worst historical case rate to maintain principle.

 

[donheff]

Don, does this mean you don't accept Firecalc's testing? Firecalc considers any year you don't run out of money a "success."

Or are you saying that you plug a large number into the number of years of retirement slot?

Yes, I do the later. What I was suggesting is that it doesn't make sense to calculate your odds of a long life and then plan your withdrawals based on the assumption that you will die at the average (or shortly after) for your type. For example, my father-in-law's three brothers all died in their early 60s from heart attacks. My FIL suffers some of their problem and had by-pass surgery. He did not live frugally because he figured he would be dead before he was 70. He is now 75 and doing fine except for the fact that he is low on money. We had to help him set up a reverse mortgage to supplement SS so he can continue to live in his condo. He beat the odds but didn't plan on it.

 

[Cut-Throat]

Yes, I do the later. What I was suggesting is that it doesn't make sense to calculate your odds of a long life and then plan your withdrawals based on the assumption that you will die at the average (or shortly after) for your type. For example, my father-in-law's three brothers all died in their early 60s from heart attacks. My FIL suffers some of their problem and had by-pass surgery. He did not live frugally because he figured he would be dead before he was 70. He is now 75 and doing fine except for the fact that he is low on money. We had to help him set up a reverse mortgage to supplement SS so he can continue to live in his condo. He beat the odds but didn't plan on it.

It seems we have to be extreme one way or the other here! - What I have suggested before is you take a somewhat balanced approach! Spend half of your principle by age 90.

So if you retire at age 50 with $1 Million, plan to have half of it gone by the time you reach age 90. Since most of us will expire before we even reach age 90, this is a pretty conservative plan. Preserving the entire spending power of $1 Million by age 90 intact accomplishes very little in safety of assets.

Examples of folks running out of money at age 75 and other examples of people increasing their spending power out past age 100 are both at the extreme ends of financial planning. I am trying to achieve some balance.

 

[youbet]

So if you retire at age 50 with $1 Million, plan to have half of it gone by the time you reach age 90.

CT, there are two ways to look at this and I'm not sure which point of view you're taking. Are you thinking that if your retirement time period is financially favorable and your portfolio is doing well, you'll step up spending to ensure 50% (real) is consumed by 90? Or, are you saying that you're plugging into Firecalc a 50% residual portfolio amount below which Firecalc will consider the year a "failure?" The first is a more financially liberal approach, the later more conservative.

Also, while you advocate spending and enjoying your money to avoid going to the grave while still having a stash, your plans seem quite conservative! Budget = 2X base needs, live to 100, etc.

 

[audreyh1]

Also, while you advocate spending and enjoying your money to avoid going to the grave while still having a stash, your plans seem quite conservative! Budget = 2X base needs, live to 100, etc.

That Budget = 2X base needs is more about being able to enjoy your retirement - especially the early years - rather than having to sweat it out year after year because you have some unexpected expenses or you're just cutting it too close on the expenses.

Amass a generous portfolio to retire on, but then spend it!

Audrey

 

[youbet]

That Budget = 2X base needs is more about being able to enjoy your retirement - especially the early years - rather than having to sweat it out year after year because you have some unexpected expenses or you're just cutting it too close on the expenses.

Amass a generous portfolio to retire on, but then spend it!

Audrey

Actually I thought CT was advocating having a 2X base budget so that you could reduce spending during extended poor market conditions without impacting your access to life's essentials.

 

[youbet]

Makes sense to me CT.

You're espousing conservative planning (2X bare bones budget + 100 year longevity) but advocating responding to favorable market conditions by increasing spending over time if the numbers so indicate. Can't argue with that.

My plans are similar. Of course personal situations come into play and everyone must call their own shots and live with the consequences. For example, I didn't get to RE until 58, I have some issues that impact my ability to be physically active and I enjoy fishing, canoeing and that sort of thing. So, I'm being a little more aggressive about early spending on those types of activities since it's unlikely I'll be able to enjoy them too much longer. Everyone's situation is unique.

 

[Nords]

But the idea of eating into the principal at any point was alien to me.
The key point though is that I wanted to insure that I would live only off of the interest until age 100. This conservative investment approach allowed me about a 2.3% withdrawal rate at 35. With this 2.3%, I need to pay health insurance, taxes, and cost of living. (The swr grew to 3% at age 70 as medical insurance costs grew. At age 100, it reached 6% and thus my withdrawal the following year would start to eat principal.) I considered age 100 to be the end of the road.
To be completely "safe" I want something more, and that entails keeping the principal sound.
So even after hearing of FIREcalc, I stand by my original viewpoint.

The most important thing about withdrawal rates is being able to sleep at night.

You're golden if you can sleep well without feeling like you're having to be excessively frugal to conserve your principal. And your heirs will be extra solicitous... although technically you'll be worth more to them dead than alive.

But even FIRECalc is pretty conservative about 4%, even with fairly constant withdrawals. Early research is showing that 5% might work quite well overall with even higher withdrawal rates in the earlier years in exchange for lower rates during "no-go" years (when your travel budget is converted to healthcare spending). FIRECalc also allows a little bit of variable spending, but Cut-Throat's bare-bones budget system (have you trademarked that yet, C-T?) gives you even more flexibility to avoid pushing your portfolio over a cliff.

The issue isn't whether the SWR is 2.38769% or 4.01632%. The challenge is a SWR that doesn't feel like a life sentence without parole. In your case there might be more danger of that than of running out of money.

Another danger is making sure that principal conservation doesn't push you to low-return investments that allow your portfolio to be chewed up by inflation. But you don't seem to be heading that way.

No one wakes up at age 90 and runs out of money. The signs are there 30 years in advance of that.

Well, my grandfather came pretty close after 14 years in a full-care facility. Of course senile dementia kept him from recognizing just about anything, let alone warning signs, but his portfolio barely outlived him.

I'd start giving large chunks to charity if I was convinced that we wouldn't be spending it on our own life-extending long-term care. It's probably another balance discussion-- give away a little now and save the rest (just in case you need it after all) to give away when you're dead.

 

[Gone4Good]

I think it is a bad idea to plan withdrawal rates that allow depletion of the portfolio over an estimated likely lifetime. Improving the estimate with a bunch of health related data merely amplifies the illusion of safety. We really need to plan on the longest potential lifetime because we may be surprised by beating the odds. If we believe Ray Kursweill could be right, that potential lifetime needs to effectively be perpetuity.

I'm starting to worry a little bit less about this as I consider my retirement plans. The possibility of financing a ~60 year retirement originally seemed insurmountable. But in addition to all the other protections we built into the plan (low initial withdrawal rate, a big chunk of highly discretionary spending, some non-investment income, etc.) I realized some other options. We could cut our spending by 30-50% by moving away from the city and into bumpkinville, if need's be. We could probably cut another 30% or so by moving to Thailand. If none of that works we'll save the last $500 bucks of our portfolio for a bottle of champaign, some bullets and a Smith & Wesson – the ultimate longevity insurance.

 

[kcowan]

...We could probably cut another 30% or so by moving to Thailand. If none of that works we'll save the last $500 bucks of our portfolio for a bottle of campaign, some bullets and a Smith & Wesson – the ultimate longevity insurance.

We have a friend who lived on the income from $250k in Puerto Vallarta for five years. Then he started buying property. Now he is rich enough to consider buying another property in the south of France.

 

[Corporateburnout]

I know that much retirement planning involves guessing how long we might live. Most actuarial tools tend to lump everyone together into a median age regardless of lifestyle difference.

The best one that I have found so far is from Wharton, because it considers many of the same lifestyle factors that insurance companies include. I also like it because it gives the lower and upper quartiles for a range of projected lifetimes.

I am interested in your reactions to this tool. And especially the spreads to lower and upper quartiles. It caused me to be more conservative regarding how long my money needs to last.

(Now if I could just get the upper decile! Here is the long form of the hotlink above:
http://gosset.wharton.upenn.edu/~foster/mortality/perl/CalcForm.html)

Pretty interesting calculator with a big spread from Lower to upper percentiles. It said that my median is 86.87 but I could improve it by .14 year if I have 0 sexual partners instead of one. What's that 2 more months? I 'll pass.

 

[Khan]

Crap, it says 91.