Most people tend to underestimate how long they might live. In fact, 43% of retirees and 38% of pre-retirees came up short by at least five years when asked to estimate the average life expectancy for someone of their age and gender, according to a recent study by the Society of Actuaries (SOA) in the U.S.

This disconnection has major implications for financial advisors and their clients in retirement planning, according to an SOA-sponsored report on the study entitled Challenges and Strategies for Financing an Increasingly Long Life, which was co-authored by Vickie Bajtelsmit, professor of finance and real estate at Colorado State University.

One drawback of using life expectancy to plan for retirement is that the age for each gender is just an average. Half of your clients will die before the average life expectancy and the other half will perish after that. Still, most clients don’t begin to think seriously about retirement until later in life, which means that by the time they begin to do that planning, their life expectancy usually is quite a bit longer on average already.

A better way to approach the problem, then, is to consider the probability of living to certain ages and the survival of a longer-lived spouse. The SOA’s study estimated that for married couples in which both partners are 66 years old at retirement, two-thirds will have at least one spouse live to age 86 and one-third will have at least one spouse, usually female, live to age 92.

In the study, Bajtelsmit and her co-authors determined the amount of money needed to fund retirement for several households with varying longevity – including joint life expectancy – at different confidence levels, then attempted to identify strategies that might improve these outcomes.

In one instance, the researchers looked at a couple, both of whom were 62 years old, with a combined income of $105,000, home equity of $315,000 and $250,000 in savings. The study determined that if that couple retired and claimed government pensions at age 66, they would need $660,000 in savings to be 50% confident of fully funding their retirement, or $880,000 in savings to be 90% confident. If that same couple retired and claimed government pensions at age 70, they would require only $410,000 to be 50% sure and $610,000 to be 90% sure.

However, if the same couple has long joint life expectancy and claimed government pensions at age 66, they would need $840,000 in savings to be 50% sure or $990,000 in savings to be 90% sure. Deferring government pensions to age 70 would mean needing only $570,000 for 50% certainty, or $710,000 to be 90% certain.

Aside from deferring government pensions, there are several other strategies your clients can use to manage longevity risk, the study suggests. These include trimming discretionary expenses, downsizing housing, using reverse mortgages and purchasing annuities or long-term care (LTC) insurance.

The report notes: “Although many of these are marginally beneficial alone, we conclude that combination strategies have the largest impact.”

For example, although reducing expenses does help retirement wealth last longer, that strategy does little to offset the effects of large shocks, such as the costs of LTC or severe investment losses.

The study also determined that taking out a reverse mortgage to fund retirement is preferable to downsizing, particularly for couples with longer joint life expectancies.