Essay
The Age Your Plan Assumes You Die
What is the one number in a retirement plan that nobody actually chose?
It is the age the plan assumes you die. In a guest post published at Kitces.com this morning, Dr. K. Jeremy Ko of ShoreUp Retirement Solutions reports that nearly 90% of advisors simply accept the age-90 or age-95 assumption already built into their planning software. Not a judgment about a particular human being. A default.
That is a defensible shortcut for a household running its own numbers. It is something closer to a breach of process for a trustee, and the reason has nothing to do with actuarial science.
Life expectancy is not one number
Ko’s point is that the variation is not noise. Across demographic lines — income, education, race — expected lifespans differ materially, in many cases by 10 to 15 years or more. Once individual health factors are layered on top, two otherwise similar clients can diverge by as much as 20 years.
Asking the client does not solve it. The research Ko cites finds a systematic “flatness bias”: younger people underestimate how long they will live, and older people overestimate how much time they have left. Both errors point the wrong way. The young underestimate and undersave. The old overestimate and delay irreversible decisions, like when to claim Social Security, on the strength of a horizon they do not have.
What has changed is that the alternative is now cheap. Ko points to the Society of Actuaries calculator, the University of Connecticut’s Goldenson Center for Actuarial Research, and the public version of Northwestern Mutual’s Lifespan Calculator — tools that take income, education, and health inputs and return something specific to the person in front of you. A family uncomfortable discussing illness or family history can complete the questionnaire privately and hand back only the output.
Why this is a fiduciary question
For someone planning their own retirement, an overly conservative horizon is a personal tradeoff. You spend less than you could have and your heirs receive more than you intended. Uncomfortable, but it is your money and your call.
A trustee has no such latitude, because the assumption does not land on one person. It allocates between two.
N.C.G.S. 36C-9-902(a), North Carolina’s enactment of the prudent investor rule, requires a trustee to invest and manage trust assets as a prudent investor would, “by considering the purposes, terms, distribution requirements, and other circumstances of the trust.” Distribution requirements are, at bottom, a function of how long the income beneficiary is expected to need them. And N.C.G.S. 36C-8-803 is blunter still: “If a trust has two or more beneficiaries, the trustee shall act impartially in investing, managing, and distributing the trust property, giving due regard to the beneficiaries’ respective interests.”
Now drop a software default into the middle of that duty.
Assume a life income beneficiary reaches 95 when her health profile points to 78, and the portfolio gets tilted toward long-horizon growth and preservation of capital she will never live to see. The remaindermen collect the difference. Reverse it — assume 90 for a healthy 65-year-old likely to see 100 — and the trustee sustains a distribution rate the corpus cannot carry, and the remaindermen absorb the shortfall at the other end.
Same unexamined number. Opposite injury. In both cases the trustee has picked a winner between the income beneficiary and the remainder beneficiary without ever framing it as a choice, which is precisely what impartiality forbids.
The honest counterargument
Conservatism here is not laziness, and the case for the default deserves to be stated properly.
No trustee has ever been surcharged for assuming a beneficiary lived too long. Underestimating lifespan is the error with the visible victim — a beneficiary who outlives the plan, in the room, out of money — while overestimating it produces a diffuse loss to remaindermen who may never know what they were owed. A trustee choosing the safe assumption is choosing the failure mode that is easier to defend, and that is a rational thing to do. Individualized modeling also requires asking a family about smoking, chronic illness, and mortality; it is intrusive, it is a probabilistic estimate applied to a sample size of one, and a specific number is easier to attack in hindsight than a standard one.
Ko concedes part of this himself. He expects advisors to keep a conservative tilt regardless, running something closer to a 90th percentile lifespan than the 50th percentile median. Nobody in this debate is arguing for planning to the median and hoping.
The fiduciary read
But there is a difference between a conservative assumption and an unexamined one, and that difference is most of the job.
A trustee who considers a client-specific estimate, sees 78, and still plans to 92 because the trust cannot absorb longevity risk has discharged the duty. The alternatives were weighed, the tilt was deliberate, the beneficiaries’ respective interests got due regard, and the file says so. A trustee who plans to 95 because the software opened to 95 has not discharged anything. He has outsourced an allocation between beneficiaries to a vendor’s default setting.
The fix is not expensive. Run the estimate, record what it said, record why the plan departs from it, and record what the departure costs the beneficiary on the other side of it. That single paragraph in the file converts a default into a decision, and a decision is the only thing a fiduciary standard can actually evaluate.
A trustee is entitled to be conservative. A trustee is not entitled to be conservative by accident, at one beneficiary’s expense, because a number appeared in a field and nobody changed it.
Source: Using Personalized Lifespan Estimation For Retirement (Nerd’s Eye View, Kitces.com), guest post by Dr. K. Jeremy Ko. Educational only — not legal, tax, or investment advice.