Good news, bad news: Majority of retirees underestimate life expectancy

If it wasn't for that pesky money part, the above headline would be good news. In general, seniors underestimate how long they'll live (which is a turn-about from people under 40 who often feel that they'll live forever). However, for people who are planning their financial resources for retirement, underestimating life expectancy is a potentially disastrous miscalculation.

From the Wall Street Journal (sorry registration/fee required), we learn that a lot of people run down their savings too early in retirement due to underestimating how long they'll need the money to last. Research actuaries have seen the trend and now business that cater to retirees are trying to get the word out and market new products to them (particularly annuities which can keep paying as long as the purchaser is alive).

• The longer you live, the longer you can expect to live. Suppose you were born in 1940. At birth, your life expectancy would have been age 70 if you're a man and 76 if you're a woman.

Since then, many folks born in 1940 have died and those early deaths aren't considered when calculating the life expectancy for those who remain. Result: If you are still alive today, you can expect to live until around age 82 if you're a man and age 85 if you're a woman.

• Life expectancies are averages -- and surprisingly few of us are average. Based on the above life expectancies, you might imagine there's a good chance you will die during your 80s.

But in fact, 44% of today's 65-year-old men will be dead by age 80 -- and 18% will live to age 90 or beyond, according to Hartford Financial Services in Hartford, Conn. Similarly, 31% of today's 65-year-old women will die by age 80 and 29% will live into their 90s.

"There may be 5% to 10% of 65-year-olds who are in poor enough health that they don't have to worry about living a long time," says Ken McCullum, a senior vice president in Hartford's wealth-management group. "But the other 90% or 95% could live a very long time. There's a lot of uncertainty for those folks."

• If you are married, one of you will likely live longer than average. While most 65-year-old men will die before age 85 and only half of 65-year-old women will live to that age, there's a 68% chance that at least one member of a couple will live until age 85 and a 42% chance that one of them will survive to age 90.

• Your odds of beating the averages may be higher than you think. The numbers above are based on the general U.S. population.

• If you're reasonably affluent and you've taken decent care of your health, you're likely to live longer

What's the best strategy? The WSJ says one of the best is to simply delay starting Social Security. If you wait until age 70 to start taking it then "you could lock in a lifetime stream of inflation-linked income that's 76% larger."

Update: Just came across a relevant posting in John Agno's So Baby Boomer: Life Tips addressing the question of when to retire. John notes that the retirement question isn't solely a monetary question, "33% of working adults are very or somewhat concerned about losing a sense of purpose in their lives after they retire." Even armed with numerous projects they intend to tackle (organizing family photos, tackling the basement, travel, etc.), over 60% of would-be retirees say that they intend to work in retirement (though for about half it will be part-time). When you then factor back in the monetary issues (including skyrocketing health care, questions of Social Security, etc.), one can see why the retirement question has gotten so much more complex than just waiting to hit 65.

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