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Don’t underestimate life expectancy in decisions | Company


I have studied the world of economics and investments for over 50 years. You need to know the relevant math to make better investment and retirement planning decisions. Here’s what I mean.

The average life expectancy in the United States is 81 for women and 77 for men. These statistics will have dire consequences for millions of pensioners. For true retirement planning, you have to look at a different metric.

According to the Society of Actuaries’ July 2006 report, “Longevity: the Underlying Driver of Retirement Risk,” there is a 50% chance that at least one member of a married couple aged 65 and over will reach age of 92 and a 25% chance that at least will live to be 97 or older.

A staggering 67% of retirees and 61% of pre-retirees underestimate average life expectancy. Only 21% of retirees and 35% of pre-retirees provide an estimate of life expectancy that meets or exceeds the target. More than 40% of pre-retirees underestimate life expectancy by 5 years or more.

Among pre-retirees, here are their plans: 44% want to eliminate all consumer debt by paying off all credit cards and loans; 51% of homeowners want to fully pay off their mortgage; 36% want to try to save as much as possible; 34% would reduce their expenses; 16% would buy a product that would provide guaranteed income for life.

My conclusion: a much higher percentage of pre-retirees would opt for a product that guarantees income for life if they realized that their spouse could live 16 years longer than the “average” life expectancy.

According to the March 4, 2022, Center on Budget and Policy Priorities, “Policy Basics: Top Ten Facts about Social Security,” the average Social Security retirement benefit in January was $1,614 per month or $19,370 per year.

“For someone who has worked their entire adult life on average earnings and retires at age 65 in 2022, Social Security benefits replace about 37% of previous earnings,” he said.

In contrast, for the group of developed OECD countries, the average gross public pension is 47%. For the first seven countries that pay at least 70%, it is (in order): Italy, Luxembourg, Austria, Portugal, Denmark, Spain and the Netherlands. The bottom five countries, starting with the worst, provide less than 30%: UK, Lithuania, Mexico, Ireland and Poland.

Worse still, most in the United States begin their lifetime Social Security retirement benefits at age 62 and only 3% wait until age 70, giving you the maximum Social Security benefit. At 70, this can be double the SS income.

I created a composite of three older single women (nurse, nurse practitioner, and pharmacist). If they took SS at age 70, they would have $40,000 per year versus $20,000 per year if they took SS at age 62. The average interest rate on a 10- or 30-year US Treasury note for the past 13 years, until the spike in interest rates over the past year, was 2%. The average dividend yield for S&P 500 companies since 1/1/2000 has been 2.02%.

Is it easier to wait eight years to take SS and get an extra $20,000 a year or save $1 million between ages 62 and 70 and receive a 2% return = $20,000 a year? Interest on US Treasury Bonds or Stock Market Dividends? The decision to wait until age 70 to take SS can be a million dollar decision.

Conclusion: If people really understood reasonable life expectancy ratings, they would wait until age 70 to trigger SS. They would also spend less; save more; repay all debts; and buy a product with guaranteed lifetime income…before they retire.

To schedule a free tax or retirement planning consultation, please contact Dr. Harold Wong at (480) 706-0177 or [email protected] His websites are www.drharoldwong.com Where www.solarbusinessinvestments.com. He got his doctorate. in economics from the University of California/Berkeley and appeared on over 400 TV/radio programs.