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Plans for retirement and transfer must include a realistic estimate of the life expectancies of the parents. Figures 1 and 2 were prepared from U.S. Vital Statistics Life Tables to show individual life expectancies for males and females ages 50 to 80. These graphs help us go beyond mean (average) life expectancies, which are a poor basis for retirement planning.
In Figure 1, the dot on the line for 65-year-old males shows that they have a mean life expectancy of about 15 years. However, the horizontal line tells us that 65-year-old males have a 50 percent chance of living more than 15 more years. Following the age 65 line down shows a 40 percent chance of living another 17 or more years, a 30 percent chance of living another 19 or more years, and so on. The dashed portions of the age lines in Figures 1 and 2 are our projections beyond the range of the data in the Life Tables.
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The planning process also should consider the joint life expectancies of both parents. Joint life expectancy probabilities show when one can expect the last (surviving) spouse to die. Actuarial data suggest that one of the two lifetimes should exceed the longest individual life expectancy by about three years. Consider a 65-year-old male and his 60-year-old spouse who are willing to assume a 30 percent chance of living beyond their planning horizon. As noted above, the 65-year-old male has a 30 percent chance of living another 19 or more years. The line for 60-year-old females in Figure 2 shows that the spouse has a 30 percent chance of living about 29 or more years. Since Figures 1 and 2 are based on average population data for individuals, a reasonable approximation suggests that this couple should plan on nearly 20 years together, followed by another 12 years for the surviving spouse. Prospective heirs should use a similar planning horizon to project when they are likely to inherit their parents' estate.