We read about it all the time: Life expectancy in the U.S. generally increases year to year. There is a lot of talk about medical breakthroughs increasing how long the average person lives. However, recently there has been bad news for the average American’s life expectancy.

So now we’re not living longer? Don’t panic yet. Life expectancy is a confusing number and has led to countless people messing up their retirement plans.

Part of the problem is that the life expectancy calculation we see out there in the news is an average number. In other words, it includes those how have died even before age 10. This is a problem because when we start planning for retirement as adults, we have already made it past the years when a portion of the population has passed away. In other words, every year we survive as adults increases our odds of living past our stated life expectancy!

Life Expectancy Calculation Is Fluid

To illustrate how your life expectancy changes as you get older, let’s look at how the Social Security Administration calculator does it:

life expectancy calculator

Source: Social Security Agency

As you can see above, as this person moves from age 62 to age 70, his life expectancy increases from 85.3 to 87.1. When it comes to retirement planning, this is not insignificant.

Life Expectancy In Your Retirement Plan

One thing is for sure when putting numbers into a retirement plan: Don’t use the life expectancy numbers you generally see in the news. In the calculator example I gave earlier, you can see that the life expectancy for a 38 year old is 82. It would be a big mistake to use this number in your retirement plan. If you do this, it will become much more difficult to figure out how much you need to retire.

To illustrate how just five years of added life can change a retirement plan, I ran some retirement calculations in our WealthTrace Retirement Planning Application. The first run was with a life expectancy of 80. The second run is with a life expectancy of 85. The results are below:

retirement calculations

Results when life expectancy is 80:

Results when life expectancy is 80 investments

Results when life expectancy is 85:

investing Results when life expectancy is 85

As you can see in the results, an extra five years of life deducts over $100,000 from their net worth.

Uncertainty Is Certain

There are a lot of unknowns when it comes to planning for retirement. Life expectancy is just one of them. There are others, such as inflation, taxes, and market returns. But we can really help our cause by making sure we have enough income in retirement to cover our expenses.

The best way in today’s investing climate to make sure you can cover your expenses, no matter how long you live, is investing in solid dividend-growth stocks. We have researched this thoroughly and we find that nothing increases a person’s chances of a successful retirement more than investing in strong dividend payers with a long history of never cutting their dividends. In fact, we have found that on average, a portfolio of the best dividend payers increases a person’s odds of never running of money by over 20%.

A few of our favorite dividend payers for a retirement portfolio can be seen below:

Name Ticker Yield (as of 10/14/16) Consecutive Years Increasing Dividends
Altria Group MO 3.7% 47
Chevron CVX 4.3% 28
Coca-Cola KO 3.2% 54
Southern Company SO 4.3% 16
Target TGT 3.4% 49

Retirement Planning Should Be Fluid

The days of a set it and forget it retirement plan should be over. We have the tools and technology to monitor and update our plans. When things change, we can see how our plan changes. We can also run scenarios to see how much stress our portfolio can take.

One of the worst things a person can do is assume projections such as 10% market returns forever and a life expectancy of 75. This can lead to disastrous decision making.

Being conservative with assumptions is a good first start. Investing such that your income covers your expenses through time is what will help you sleep better at night.