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Living too long is a risk!

(MoneyWatch) Many people say they want to live a long time, but they don't really understand the financial implications of that wish. If you don't make the necessary monetary preparations for a long life, you could end up penniless and have to rely on family or the government safety net for support.

So how long might you live? This post follows up my last post, which discussed a recent report from the American Academy of Actuaries that addressed longevity risk -- the risk of living beyond your life expectancy.

The report, "Risky Business: Living Longer Without Income for Life," contains estimates from the Social Security Administration tables of life expectancies for individuals currently age 65. According to the report, a man age 65 can expect to live a further 18.9 years on average; a 65-year-old woman can expect to be alive an additional 20.9 years. These life expectancies have increased by about five years since 1935, when the Social Security program was implemented (longer lifespans are one cause of Social Security's current financing issues).

But these life expectancies are just averages. What are the odds of beating the averages?

The "Risky Business" report shows that a 65-year-old man has about one in five odds of living to age 90 -- about six years longer than his life expectancy. A 65-year-old woman has almost one in three odds of living to age 90 -- four years longer than her life expectancy. And a 65-year-old couple has a 45 percent chance -- almost 50-50 -- that one of them will survive to age 90.

The Social Security tables represent the population at large, including people who smoke or work in unhealthy environments. How do the odds improve if you take care of your health? The report calculates the odds if you experience mortality rates -- the odds of dying in a year -- that are 75 percent of those on the Social Security's tables. These lower mortality rates can apply to you if you have above average education, a regular job, don't smoke, keep your weight at healthy levels, eat nutritious food and/or get regular exercise. If you die at these reduced mortality rates, you'll live longer than the population at large.

In this case, the odds are almost one in three that a 65-year-old man will live to age 90 and about one in eight that he'll live until age 95 -- 11 years beyond his life expectancy. A 65-year-old woman has 42 percent odds of living to age 90, and 21 percent odds (more than one in five) of living to age 95 -- nine years beyond her life expectancy.

The odds are 31 percent -- almost one in three -- that one member of a 65-year-old couple will live to age 95. The odds are one in 10 -- 10 percent -- that one member of this couple will live to age 100.

But most people aren't financially prepared to live that long or deal with the uncertainty of their actual lifespan. Retirement planning would be easier if you knew exactly how long you'll live. So what can you do to protect yourself against the risk of living too long? Stay tuned for my next post.

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