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By Robert Powell, MarketWatch

BOSTON (MarketWatch) — Researchers will debate ad infinitum whether it’s better to use mortality data or a fixed time period when studying the subject of retirement planning.

But there’s no debate about what you should use when planning for retirement in real life. In fact, most researchers and financial advisers say you should only use a fixed period of time when planning your retirement.

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And in a world where many people — at least according to various surveys — are worried about outliving their money, this is an important point that should not get lost in the retirement-planning fray. Playing the odds that you won’t live past a certain age because of numbers in a mortality table is the wrong way to plan for retirement, say researchers.
Consider: According to the mortality tables, there’s a two-thirds chance that a male who’s age 55 today will live to age 80. Imagine if you play the odds as if you were at a Blackjack table — and plan on being among those who die before age 80, but don’t.
“Economics is crystal clear that the right planning horizon is one’s maximum, not one’s expected age of life,” said Larry Kotlikoff, an economics professor at Boston University. “We can’t count on dying on time. We need to plan to live to the maximum age of life for the simple reason that we might. Economics says that if people aren’t extremely risk averse, they will plan to have their living standard drop gradually as they age. This lets them gamble a bit that they will die on time.”
This is not to say that researchers and financial advisers don’t have something to argue about and debate. There is some disagreement about how long you should plan on living in retirement, with some saying that you should plan on living to age 105, or at least 30 years, while others say some customization and personalization is required.
This, by the way, is no trivial matter. Planning for a retirement that might last 40 years instead of 30 years or 20 years has all sorts of implications, both anticipated and unanticipated. For instance, planning for a retirement that might last 40 years instead of 30 means that you might have to save much more than you thought, or work quite a bit longer than you had planned, or reduce, unexpectedly, your standard of living a good deal more than you ever imagined.

“I routinely recommend my clients plan for their resources to last till age 105, and hope that the Fountain of Youth is not discovered in the meantime. You can’t cover your ankles in a pair of shorts.”

Bill Bengen, Bengen Financial Services

Michael J. Zwecher, author of “Retirement Portfolios: Theory, Construction and Management,” and Bill Bengen of Bengen Financial Services, are at one end of the spectrum. Zwecher, somewhat tongue-in-cheek, said he follows the Brooke Astor rule. “She lived to the age of 105,” said Zwecher. “I’ll plan for 105 and if I get bad news along the way, I’ll splurge or donate with the excess; if still around at 106, well, I’ll worry about that in 2064.”
As for Bengen, he said he uses computer software to integrate many factors into a client’s retirement plan. “I recommend clients plan for a longer time horizon than they can ever imagine,” said Bengen. “Nobody knows how long they will live. I routinely recommend my clients plan for their resources to last till age 105, and hope that the Fountain of Youth is not discovered in the meantime. You can’t cover your ankles in a pair of shorts.”
Joe Tomlinson, FSA, CFP, of Tomlinson Financial Planning, would be among those in the 40-year planning horizon camp. “For an individual or couple planning their own retirement, I’d suggest using a conservative life span,” he said. “Part of the reason is that the consequences of running out of money typically weigh much more heavily than being able to leave a bequest.”
For instance, he said a 65-year-old husband with a 60-year-old wife would require a 40-year planning horizon to be 90% confident of covering the last to die. (He recommends, by the way, delaying Social Security and purchasing some type of annuity as ways to make sure you don’t run out of money or life style in retirement.)
Meanwhile, David Blanchett, a research consultant at Morningstar Investment Management, is in the 30-year camp.“Most retirees are not going to be able to model mortality experience, so they should generally stick with a fixed period, for example 30 years,” said Blanchett, who also authored a paper on the subject for the Journal of Financial Planning. “Advisers and financial planners should consider some type of mortality overlay, though, since ‘failure’ is only going to be experienced if the portfolio runs out of money and the retiree is still alive.”
Read Blanchett’s paper, Joint Life Expectancy and the Retirement Distribution Period.

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