What does the term "life expectancy" relate to in retirement planning?

The term "life expectancy" in retirement planning is crucial as it relates to the projected duration of an individual’s retirement savings. Understanding life expectancy helps individuals estimate how long they will need their retirement funds to last. Since people are living longer due to advancements in healthcare and overall quality of life, it is essential for retirees to consider how long their savings will need to support them throughout retirement.

For effective retirement planning, knowing one's life expectancy allows individuals to calculate how much they should save, what type of investment strategies to employ, and how to budget their expenditures throughout their retirement years. Accurate assumptions about life expectancy can significantly influence financial decisions regarding withdrawals from retirement accounts and the sustainability of one’s savings.

This perspective on life expectancy emphasizes the importance of aligning retirement portfolios and income strategies with the anticipated length of retirement, ensuring that funds do not run out prematurely.