Life expectancy plays an important role in financial planning. It influences decisions about how much to save, invest, and/or insure to cover retirement, healthcare, long-term care, and other needs that may crop up over the course of a lifetime. Of course, there are some important nuances to life expectancy.
First and foremost, life expectancy changes throughout your lifetime. According to the Office for National Statistics, the average life expectancy for a newborn was 78.9 years for males and 82.7 years for females.
Second, during the past two centuries, life expectancy increased by leaps and bounds. In the 1900s, most people didn’t live past age 50. By the end of the first decade of the 21st century, people were living beyond age 70. Not everyone’s life expectancy has increased at the same pace. A 2012 Brookings Institute article said:
“Analysts have long recognised the powerful association between personal income and expected life spans. People with higher incomes tend to live longer than people with lower incomes. Statistical tabulations suggest that the relationship is nonlinear. A £10,000 increase in annual income does more to lift the life expectancy of someone who lives on a meager income than it does to boost the life span of someone who is already well off.”
Gender plays an important role, too. While it’s true women have lived longer than men for decades, the gap has been closing. Since 1980, men’s life expectancy at birth has increased from 70 years to 76.2 years – a gain of more than six years. Women’s life expectancies at birth have increased from 77.4 years to 81 years – a gain of less than four years.
Life expectancy isn’t the only thing that can have a significant effect on your financial plans. If your plan hasn’t been thoroughly reviewed in the past year or so, you may want to contact your financial professional. It’s time for a planning checkup!