To plan well, ask: Will I make it to 100?

AS THE United States moves away from defined-benefit pension plans and toward 401(k)-style savings plans, retirees will face a profound question: How much to spend now, and how much to save for a protracted old age? With a fixed flow of income, retirees didn’t have to fret about living longer than expected; the monthly checks would keep coming. But retirees living off lump-sum savings plans must determine how much to save for a still older age. Thus, an 80-year-old with a large savings account might nonetheless choose to live in frugality, for fear of needing substantial care at age 95.

One way around that problem is to use the savings plan to purchase an annuity, which provides a permanent monthly benefit. That’s what the British government has long provided for its retirees, but that policy has been heavily criticized amid falling values of annuities. The coalition government of Conservative Prime Minister David Cameron maintains that retirees can better manage their pensions themselves. And now, as the nation prepares for major retirement reforms next year, pensions minister Steve Webb is suggesting that the government help people plan for the future by advising them on how long they can expect to live. He believes trade-offs will be better understood if pension advisers honestly discuss how gender, weight, smoking, and other factors affect life expectancy. “There’s no point being all British and coy about it,” Webb told the BBC.

He’s right, and that goes even for let-it-all-hang-out Americans. However awkward the subject, reckoning with how long one is likely to live is an essential element of a responsible financial plan. Making projections based on one’s current health and the best actuarial information available is only common sense — as long as retirees understand that actuarial statistics are hardly foolproof, and that many people will gladly outlive their projections.