Page 126 - Ready Set Retire

Stephen J. Kelley

the insurance industry, and it is surprising in its pinpoint
accuracy.

The premise is straightforward. Assume you have a large group
of people, say 10,000, who are in the 65-70 age group. Life
expectancy for this group is around 17 years. So, if you are 65,
you can expect to live to 82 by their calculations.

But can you? Let’s look at what life expectancy actually means.
It means that half the people in the pool are now dead, but half
are still alive. It may or may not be you. Even so, does it make
sense to think it’s possible to use that information to maximize
retirement income?

Your plan calls for $18,000 a year. What does shifting to an
actuarial model do for that? Assuming you budget for the full
$18,000, but are able to adjust the payout for the probability
you will be alive after 82 would look like this:

$18,000 ÷ .50 = $36,000

Applying and leveraging actuarial calculations would render
twice the income, after the “drop-dead” date (pardon the
pun!). Think of your bookie. If you knew there was a 50%
chance of your team winning a game, and you had $100 to bet,
in a purely statistical model, what would you expect the payoff
to be if your team won?

116