How to Use an Actuarial Table. The best way to make long-term decisions.

This post is not for actuaries or insurance people. This is for deciding your future and what to do over the next few years or decades. This will help you determine whether to plan a big trip or consider retiring. In my case, I am leaving clinical medicine after over thirty years, mainly because of what I have learned from a simple actuarial table.

According to the superb site Investopedia, an actuarial table is “An actuarial life table is a table or spreadsheet that shows the probability of a person at a certain age dying before their next birthday.” 

A few are available online, but I use the one the Social Security Administration publishes. When discussing health and prevention with patients, some have criticized me, saying I am being unkind by pointing out their age and life expectancy. But why? I am telling the truth. How can you make rational decisions about your health without knowing the truth? As Marcus Aurelius said, and Ryan Holiday, {https://ryanholiday.net} in his books, taught me, “It’s the truth I’m after, and the truth never harmed anyone. What harms us is to persist in self-deceit and ignorance.”

You cannot decide if a colonoscopy to screen for colon cancer is worth the minor risk until you know your life expectancy. If I knew I had an average life expectancy of a year, why would I do a colonoscopy? Why would I worry about my cholesterol? Why would I work at a job I hate?

Most of the time, even with estimates of your life expectancy, the decisions are complicated, but at least you should know what to expect over the short and long term, knowing there are no guarantees. There are two columns of the table I pay attention to–Life expectancy and Death probability. Life expectancy is the average number of years a person has to live. This is an estimate based on the current trends, and it is based on a person your age of average health. Depending on your health, you can expect more time on average. Be cautious because most people overestimate their level of health. 

So, I will be 55 in a few weeks. The table says I have a life expectancy of 24.27 years. Let’s say 24 years. If I have 24 years left, I will likely be able to do more things with my money in the first eight than in the last eight. Even if I can travel around the world at 75, will I want to? I doubt it. So, that is a reason to take more trips, spend more money, or even retire now. If I were eight years old, I would have a life expectancy of 7.74 years. What would I want to do? But my son is 25. He has a life expectancy of over fifty years. He might want to plan many years ahead.

The more important column of the table is Death Probability, the probability of dying within one year. My death probability is 0.091, just under 1%. At 59, it is 1.25%. That means that in 5 years, the chance I will be dead is about 6%.  If I run a financial retirement calculator, it might say that if I retire now, the possibility of running out of money before I die is 5%. If I wait five years to retire, I will have a 6% chance of running out of life before I retire to spend the money. That is not a bet I want to take. A 6% chance of dying is too much of a risk. I do my best to stay healthy, but I know that things happen. I will retire soon. In fact, I have given my notice and will leave my medical practice on my 55^th birthday.

The actuarial table doesn’t predict your future any more than your budget predicts precisely how your investments will perform. But you have to start somewhere. If you have an idea about how much money you will have at the end of the year, you can decide if you can afford a new car. Knowing your life expectancy and chance of surviving a year, you can decide what is worth doing now or what you might put off for a later day.