Retirement Guide on MSN MoneySpring Retirement Guide
Fri, 28 Mar 2014 13:30:00 GMT | By Gordon Powers, MSN Money

Do people who retire early live longer?

Whether you retire young or work much later, your chance of having a long and healthy retirement remains pretty much the same.

Gordon Powers

Does early retirement improve your chances at a longer life? If you’re a coal miner, I’ll bet it does. But, for the rest of us, I’m not so sure.

There is some research to suggest that people who retire early tend to die younger than those who continue working.

Looking at thousands of employees who retired from Shell Oil over a 30-year period, a study of former workers at the company found that those who retired at 55 died younger, on average, than those who retired at 65.

But that paper didn’t account for the fact that those who retired early because they were seriously ill and died prematurely made the average life expectancy for other retirees appear much lower than it really was.

In fact, according to a recent Australian report, whether you retire young or work well into old age, your chance of having a long and healthy retirement remains pretty much the same.

When comparing the longevity of individuals who retired early with those who worked well into their 60s, the researchers could find no discernible difference.

They did, however, uncover a strong link between being forced out of work and the age of death.

The truth is, people retire at different ages for different reasons. But they all have something in common — they simply can’t last forever.

And while you can never be sure just how long you’ve got, an accurate estimate of life expectancy is important when looking at retirement — regardless of when or how it actually starts.

Assessing how long you might live helps determine just how much money you should be saving now, the amount of risk you can handle, and what you can reasonably expect to spend each year when you finish work.

Retiring at a younger age, for instance, will mean more savings to cover those additional years. Waiting too long though could mean no longer being able to do some of the things you’re looking forward to.

Aside determining whether your family has good genes, your best bet is probably LIVING TO 100 — a detailed longevity calculator that takes into account your lifestyle and family history.

And while adding five to 10 years to your resulting life expectancy just to be on the safe side might seem to make sense, be cautious, warns Michael Kitces, a financial planner and research director at Pinnacle Advisory Group.

In many cases, advisors adopt a uniform ‘standard’ assumption for clients, without adapting it to even the most basic circumstances, he says — like whether they’re talking with a single person or a married couple, despite the significant difference between individual and joint life expectancies. 

While there's certainly a high likelihood that a married couple will live several decades in retirement, the odds are overwhelming that for much of that time period, only one — but not both — of them will be alive, he explains.

The reality is that the typical retirement assumption of a 30-year time horizon at age 65 looks drastically different depending on whether you’re part of a married couple or a single person.

Life expectancy is roughly to age 85 for a 65-year-old female, and to age 82 for a 65-year-old single male. But the number for a single person is four to seven years shorter than for a married couple, which is only 24 years in the first place for a 65-year-old couple.

In other words, the life expectancy when planning for individuals is 15 to 30 per cent shorter than for couples, which — if properly adjusted — would allow for a significant increase in retirement spending, he maintains.

Of course, many advisors don't like to use average life expectancy alone as a basis for planning — by definition half of us will live longer — which is why age 95 is often the default final retirement age for a married couple.

But, at age 89, while there may be a 50 per cent probability that at least one member of the couple is alive, the odds are only about eight per cent that it's both of them and a whopping 42 per cent that it's just one of them, Kitces notes. 

All of which means that routinely planning for all 65-year-olds to live for 30 years to age 95 may actually be way too conservative, unnecessarily constraining retirement spending to protect against fairly slight risks, he concludes.

Plan accordingly.

Got a question about investing, saving or retirement? Send Gordon an email and we might answer your question in a future column.

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