Thirty years to go

I've done this mathematical exercise before, but it never fails to amuse and intrigue me. So here we go again.

This week, I received the yearly notification about a life insurance policy that I took out via my employer some years ago. It works like this: I pay €146 a month into the scheme, and the insurance company (Allianz, by the way) agrees to pay out in the future.

This payout will come either as a lump sum (currently estimated at around €12,000) if I die before 1 July 2022, or it will provide for my old age after that date.

So far, so good. Where it gets interesting (for me, at least) is that I have two options if I survive to 1 July 2022. I can take a lump sum of just under €57,000 or a monthly pension of €269. Both figures are current estimates and are not guaranteed. The exact amounts in 2022 will depend on the performance of shares and other assets between now and then.

But presumably, Allianz has calculated these figures in such a way that it doesn't care whether I take the lump sum or the monthly pension. And this is based on their actuarial expectation of how long I will live.

So, Allianz must be expecting that I will live for 57,000/269 months after 1 July 2022. This gives 212 months, or roughly 17.5 years. Since I will be 63.5 years old on 1 July 2022, Allianz is predicting that I will live to be about 81. (If there are any life insurance experts reading this, please feel free to correct my calcuations using the comment function below.)

It's nice to know that I can look forward to another 30.5 years of life. I can start planning all the things I would like to do in that time. For example: drive through the United States for two years; visit towns such as Madrid, Oslo, Naples, Perth, Sevastopol and Shanghai; and see my football team win a major trophy again (I've already waited 29 years).

I should have time for most of that — I'm not sure about the football team — because the German government expects me to work until I'm 66.5 to qualify for a full state pension. That gives me 14.5 years of retirement to fulfil my remaining dreams. Some I plan to do much earlier.

By historical standards, 14.5 years is a very long time. Indeed, one of the main aspects of progress in industrialized nations over the past 100 years has been the increase in life expectancy. (Allianz reserves the right to reduce the level of monthly payments it offers if life expectancy increases further.) This has meant that men in particular can expect to enjoy much longer retirements after they finish work.

Of course, the future is never as clear-cut as the actuarial expectations. And I haven't decided yet whether to take the lump sum or gamble on a longer life than Allianz expects. I've got another 13 years for that decision.