Patti and I use her life expectancy as the number of years we want for Zero Chance of depleting our portfolio. I use the number of years to get our age-appropriate Safe Spending Rate (SSR%). I use that rate the first week of December to test to see if we can or cannot increase our Safe Spending Amount (SSA) for the upcoming year. (See Chapters 2 and 9, Nest Egg Care (NEC).) The purpose of this post is to describe details of life expectancy calculations and show how I build a table of future SSR%s. I provide a spreadsheet you can use. I find that life expectancies have increased over time. I need to check my table at least every few years. This post is an update on this topic from about a year ago.
== Life Expectancy ==
Your life expectancy is the number of years (or years and months) that 50% of those your current age are no longer alive (or are still alive). I now use the Social Security (SS) Life Expectancy Calculator. (I originally used the Vanguard probability of living calculator; that no longer exists.)
Calculators use a mortality table. The table contains data collected in one year of the one-year death rates for those who for those turned a certain age – from those just born to those who turned 119 as an example. This is the current table that Social Security uses, dated 2019. When they publish the data for 2020 and 2021, COVID deaths may result higher death rates for older folks.
The one-year death rates change over time. The table dated 2014 shows that 3.60% of males age 75 died in a year. The current table dated 2019 shows that 3.46% of males age 75 died in a year. The death rate declined by 3.8% over those 5 years.
The SS calculator estimates the life expectancy of those born the same year. All those born in 1957 would be in the same cohort and would turn 65 in 2022. To get its estimate of life expectancy the cohort of 65-year-olds, SS uses the current mortality data and predicts how the one-year death rates may change in the future; it estimates that death rates will continue to decline. It then cumulates its predictions of annual death rates and finds the number of years and months where 50% of a cohort have died and 50% are alive. The number of years and months to reach that point is your life expectancy. That’s what it is displaying when you enter your birth day and year into the SS calculator.
I’ve gained an appreciation as to why Vanguard likely no longer provides a probability of living calculator. It can’t get the data – or at least I can’t find it – for SS’s predictions of future, lower one-year death rates. Without those estimates, Vanguard’s (or any) calculation for life expectancy would not agree with SS’s calculation: the Vanguard calculator would show fewer years or months of life expectancy.
== I’ll use the SS calculator ==
I judge the SS calculator is best to use for our planning. It has the sophistication of the predictions of how annual death rates may decline in the future. A weakness is that it does not segment the data based on current health condition – the annual death rates for smokers or non-smokers; for those who have diabetes and those who don’t; or by socio-economic status. I’ve seen an actuarial table for “white collar” vs. “blue collar” that suggests the average “white collar” life expectancies might be two or so years more than one gets from the SS calculator.
You can search the web and find calculators that predict your life expectancy based on your race, income, exercise habits and so forth; some will predict many more years of life expectancy than you get from the SS site. I don’t find the underpinnings and therefore don’t trust those calculators. Even though Patti and I are in good health, I see no reason to use a longer life expectancy than I get from the SS calculator. That’s what I’ll use in the future.
== A table of future life expectancy ==
I build the table below of Patti’s future life expectancy so I know the Safe Spending Rate (SSR%) that I’ll use for our calculations of our Safe Spending Amount (SSA) each November 30. You can download this spreadsheet to build a similar table.
#1. I use November 30 as our calculation date. Let’s assume Patti will be 75 years + 1 month this November 30. On the SS site (March 8, 2022) I input her birth date as February 8, 1947) to get the resulting of age 75 and 1 month.
#2. The result is her life expectancy of 13.5 years. I round that to 14 years for the table. From Appendix D, NEC I find the SSR% for this November is 5.05%. That’s the same SSR% I used last November 30.
#3. I repeat step #2, but I input her birth year to 1946 to get age 76 and 1 month for November 30, 2023. I get 12.8 years as life expectancy. I round to 13. I find the appropriate SSR%. I repeat this for two more years in this table.
The results are roughly one more year of life expectancy for all years that I display in Appendix G, Nest Egg Care. I understand now that that the data for life expectancy is not static. Death rates decline. Life expectancies increase. I now suspect that Vanguard did not use SS’s predictions of declines in death rates. I now know to use the SS calculator and I know to refresh my table of future life expectancy every several years to account for revisions. (I see in my table that in 2025 I currently have life expectancy as 11.4 years and that I round down; that’s one I’ll check for sure; I may find I greater life expectancy and that I should round up.)
Conclusion: In Nest Egg Care (NEC), Patti and I settled on her life expectancy as the number of years we wanted for Zero Chance of depleting our portfolio. That number of years determines our Safe Spending Rate (SSR%) that I use shortly after November 30 to calculate to see if we can or cannot withdraw a greater, real Safe Spending Amount (SSA) for the next 12 months.
I find that our Life Expectancy is not static. Over time, death rates at any age have declined and life expectancies have increased. The Social Security Life Expectancy Calculator uses this fact in its estimates of life expectancy.
I learned two lessons: stick with the SS calculator and refresh my calculations of future life expectancy every few years.