Playing Russian roulette with a thousand-chamber gun might not seem so risky until you consider the consequence of that 0.1 percent risk.
I’ve been working with Linda, my client, for the last hour, entering data into MoneyGuide, our planning program. We’re now discussing the plan’s time horizon—how long her nest egg needs to last so she can keep groceries on the table.
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“Linda,” I asked her, “one of the major guesses we need to make is how long you will need money.” (That’s my tactful way of asking what age she thinks she’ll die.)
Years ago, we used a standard actuarial table to estimate how long someone might live. Unfortunately, as a thoughtful friend pointed out, that means you’d have a 50 percent chance of outliving your nest egg, so today, we use age that, based on your current health, your family’s health history, and if you are or are not a smoker, represents a 30 percent chance of your reaching that age. (Chapter 15, Life Timing. What Lynn Hopewell Teach Us?”)
“Linda,” I continued, “based on your current health and your family health history, we should consider using age ninety-three for planning.”
“Harold, you must be kidding. I’ll never make it to ninety-three! Let’s use eighty-five.”
“Sounds like a nice number. How did you decide on eighty-five?”
“Well, actually, no particular calculation. It just seems like a reasonable age to use, and I want to be reasonable in my planning.”
“Tell me, Linda, are you familiar with Pascal’s wager?”
“Pascal’s what?”
“Pascal’s wager is a philosophical construct devised by the seventeenth-century mathematician Blaise Pascal. Here’s my version: If you knew for certain there was only a 10 percent chance that God exists, you would have two ways to live your life: You could conclude the probability of God’s existence was so low you’d elect to ignore morals and ethics and live a totally outrageous life.
Read the full article here by Harold Evensky, Advisor Perspectives.
