Life Expectancy

What Is Life Expectancy?

Life expectancy is the average number of additional years a person of a given age is expected to live, based on statistical data about mortality. It is usually estimated for a specific age and sex, so a newborn's life expectancy and a 65-year-old's life expectancy are different figures. It is a statistical average for a population, not a prediction about any one individual, who may live much shorter or longer.

How It Is Calculated

Actuaries and government statisticians estimate life expectancy from a mortality table that records how many people in a group die at each age over a period. By tracking survival rates from one age to the next, they can work out the average remaining years for people who reach a given age. Two related measures are often confused: life expectancy at birth, which summarizes the whole population's mortality in one number, and life expectancy at a later age, which is generally higher for those who have already survived the early years.

Why It Matters to Investors

Life expectancy is a key input in retirement planning, because it helps estimate how long savings may need to last. A longer expected lifespan suggests a longer period of withdrawals, which can affect decisions about the withdrawal rate and how much to hold in growth assets versus more stable investments. It also shapes the pricing of annuity products and life insurance policies, since insurers use mortality data to estimate payouts and premiums.

Limitations

Averages hide wide variation. Health, income, occupation, lifestyle, and geography all influence how long people live, so general population figures may not match a particular person's situation. Life expectancy estimates also change as medical care and living conditions change, so older estimates may become outdated. The risk of living longer than expected, sometimes called longevity risk, is one reason planners often build in a margin rather than relying on the average alone.