What does Life Expectancy Actually Mean?



Clay Gillespie

Managing Director, Financial Advisor & Portfolio Manager


Life expectancy is one of the most misunderstood aspects of retirement income planning - yet, it is one of the most important factors.

Most people assume that life expectancy is the same as lifespan. This is not correct. Instead, life expectancy is a median number of years - such that 50 percent of a particular age group will die before this number of years, and the other 50 percent will die after this period.

Current life expectancy (2014 data) in Canada is 80 years of age for males and 84 years of age for females (source: Statistics Canada). This is for individuals born today. Life expectancy in 1990 was 74 years of age for males and 81 years for females. You will notice that the difference between male and female life expectancy is shrinking. In 1990, the difference in life expectancy between males and females was 7 years and today it is only 4 years.

Life expectancy also changes as you age - the longer you live, the longer you are expected to live.

For example, a male who is 65 years of age today has a life expectancy of 21.4 years; this means that he is expected to live until age 86.4.

There is, however, a 50 percent chance that he will live longer than 21.4 years.

A female who is 65 years of age today is expected to live for another 24 years (age 89). But, she has a 50 percent chance of living longer than 24 years.

Thus, the mathematical truth is that females need to save more or work longer to have the same retirement income as a male of the same age. For example, a female who retires at age 65 will need to save more to deal with an extra 2.6 years of life expectancy.

In our analysis, we looked at generating a net spendable income (after taxes and after inflation) for various income levels to life expectancy and to life expectancy plus 5 years.

A net spendable income represents a lifestyle number. We all know that we must spend more every year to maintain our lifestyle.

It turns out that females need to save 8.5% to 9.5% more than males to take account the differences in life expectancy.

Even more interesting is the result for a couple, both age 65. In this case, their joint life expectancy is 27.6 years - this means that, on average, one of a couple age 65 today is expected to be alive at age 92.6.

Therefore, a couple who retire at 65 years of age will need to deal with 6.2 years of life expectancy differences as compared to a single male or 3.6 years as compared to a single female. The reason this number is higher is that when you have 2 individuals in the analysis, there is a greater chance that one will outlive their respective life expectancy.

Thus, when planning for retirement, it is important to look beyond the life expectancy number. I would recommend that at least 5 years and better still, 10 years, be added to your life expectancy number when planning your retirement income strategies.

With continuing advances in medical technology, it is anticipated that life expectancy numbers will continue to rise in the coming years. 

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