The figures are scary and give us further reason to get a better handle on the longevity of our clients.
How can you know how long a client can expect to live? How does the government “know?” Perhaps you have seen figures from an insurance company or financial services company that have provided a life expectancy estimate. Here’s the most important thing to know: Any calculation that hasn’t received direct input from the individual, such as medical and lifestyle details, is an average.
And these averages can have a wide variance. In fact, if you visit the social security website and calculate your age, you will receive one life expectancy calculation for today and another for when you reach age 62 and even another for when you reach age 70. The government can’t be sure, so they give you a wide range of averages – or put more bluntly, they give you guesses.
If you check out Northwestern Mutual’s life expectancy calculator, for example, you will find more detailed questions about your overall health, exercise habits, nutrition and family medical history. As you go through the questions, your prospective age is posted in the upper right hand corner of the screen and your life expectancy goes up or down based on how you answer. If you smoke, expect the number to drop. If you exercise regularly, watch it rise, for example.
One of the most detailed life expectancy calculators was created by researchers at the University of Pennsylvania. It asks very detailed questions about your health, stress levels, family medical history and other factors such as how many miles you travel per year and whether or not you wear a seatbelt while driving. I found this to be the most believable calculator, primarily because it uses many data points that I can verify, because I’m the source of the information.
In the life settlement industry, calculating life expectancies is a critical part of our business. We have built our own models, and believe me, we incorporate significantly more data than the traditional calculators. Our life insurance policy evaluation tool, called Life Pass, uses some of this technology. Understanding longevity, whether you are selling an annuity or evaluating the sale of life insurance policy, remains critical to wealth planning.
Once you have a better understanding of how long your client will live, then you can properly plan. How much you will need can’t be realistically projected until you have a good idea of how long they will live.
Life expectancy is something of a creepy topic but it is a necessary evil when planning for your client’s future. Understanding that important parameter in the retirement planning equation will make it easier to plan for the future and secure a healthy retirement.