Financial Planning / The Compound Effect
The cruelest math in retirement planning is not knowing the finish line
| 5 min | By Heath J. Harris
The longer you live, the longer you are likely to live. That single quirk of the mortality tables changes how we build every plan we touch.
Picture a long hallway with a door at the end, and nobody will tell you how far away the door is. You have to walk it, spend along the way, and make the money last, without a number on the wall. That is retirement. Every other planning problem has a known finish line. This one hides it on purpose.
We had a client tell us he was planning to run out at 85 because that felt about right. We asked him where he got the number. He got it from a gut feeling and a rounding instinct. That is how most people set the most important assumption in their whole financial life.
The quirk that trips everybody up
Here is the part that surprises people. The longer you live, the longer you are expected to live.
A healthy 65 year old couple today is not looking at one number. According to Social Security actuarial data, a 65 year old man has a life expectancy into his mid 80s and a 65 year old woman into her mid to late 80s, and those are averages, meaning roughly half live longer. Push the clock forward. Once that same couple reaches 85, the survivor is now expected to live several more years, into the 90s. Reach 90 and the tables push again.
Expectancy is not a fixed target you drift toward. It moves out ahead of you as you go. That is why planning to a single age is a trap. You are not aiming at one door at the end of the hallway. The door keeps sliding away every year you keep walking.
For a couple the odds compound. The chance that at least one of the two is still here at 90 is meaningfully higher than the chance for either one alone. Plan for the first death and you can leave the survivor short for a decade.
So we plan for the long, good life
We made a decision as a firm a long time ago. We plan for our clients to live long, healthy, happy, fulfilled lives, and we build the money to match. Not because we are optimists. Because it is the only assumption that does not blow up if you are wrong.
Plan for a short life and live a long one, and you run out. That is the failure that cannot be fixed at 92. Plan for a long life and pass earlier than the plan, and your heirs inherit more than expected. One error is a catastrophe. The other is a gift. We build for the gift.
Where health insights change the math
We talked earlier in this letter about health insights, and this is where they stop being a wellness footnote and start being a financial input.
Health care is one of the largest and most underestimated line items in a long retirement. A Fidelity estimate has put the lifetime health care cost for a 65 year old couple well into the hundreds of thousands of dollars, and that figure climbs with longevity because you are simply buying more years of coverage, medication, and care. The longer you live, the more of it you consume.
So the same longevity that makes the plan harder also raises the single expense most likely to derail it. That is the double bind. And it is exactly why having a plan for health costs, not a guess, changes the whole picture.
Here is the leverage nobody talks about. Every dollar you do not burn on avoidable health care is a dollar that stays invested, keeps compounding, and lands with your heirs or funds the trip, the second home, or the grandkid's tuition. Spend less on health, keep more of your capital working, and you widen the margin at both ends. You reduce the biggest wildcard cost and you grow the pile that has to last an unknown number of years.
A plan for care in your back pocket does two things at once. It keeps a medical event from forcing a fire sale of investments at the worst moment. And it lets you spend the rest of your money with confidence, because the scariest line item already has a home.
What this looks like in a real plan
We do not build to age 85 because it feels right. We stress the plan against ages that would frighten most people, into the mid and late 90s, and for a couple we run the survivor scenario separately. We layer in a health cost reserve so a hospital stay does not become a portfolio decision. And we size withdrawals so the money grows across a long horizon rather than draining toward an imaginary finish line.
The result is a plan that works whether you get 20 more years or 35. You spend without the low grade fear that you are one bad year from trouble. And if you leave earlier than any of us hoped, the people you love inherit a plan that was built for the long walk, not the short one.
Nobody knows where the door is. We stopped pretending we do and started building for the hallway.
If you want help running this for your own plan, our team at Compound Advisory does this work every week. You can schedule a complimentary assessment at compoundadvisory.co/free-assessment.