Income Planning and Health: Life Expectancy Affects Saving
What You Need to Know
Projecting a 95-year client lifespan is a baseline for advisors.
Diabetes is a condition that can have a huge effect on retirement income needs.
A healthy 50-year-old U.S. man has a 50% chance of living to 88, according to Ron Mastrogiovanni, the president of HealthView Services.
If he has diabetes, that will cut his life expectancy to 77. He might need only $1.45 million in total income to handle retirement, or $1.74 million less than he would need if he were healthy.
HealthView develops life expectancy forecasts to estimate how much advisors’ clients will spend on health care. It also develops health care spending forecasts to help advisors get clients’ income planning and asset planning right.
Mastrogiovanni thinks advisors will want the tools once they understand just how much life expectancy affects what clients need to save for retirement.
“Having a number that’s based on actuarial analysis makes clients feel so much more comfortable than just picking an arbitrary number,” Mastrogiovanni said.
What it means: COVID-19 reminded advisors that life expectancy is a critical factor in any kind of personal planning.
Now, advisors might start making use of life expectancy forecasting tools a routine activity.
HealthView: HealthView is a Danvers, Massachusetts-based health care cost-forecasting firm that started up in 2008.
It analyses 500 million health insurance claims per year to track trends in health care spending.
It can then use the data to estimate how long advisors’ clients will live and how much the clients will spend on commercial health insurance, Medicare premiums, long-term care services, out-of-pocket costs and other health care-related costs.
The typical people analyzed are 401(k) plan participants ages 25 through 65 and individual financial services clients who range in age from their 40s to their 80s.
Advisors and life expectancy: Advisors should think carefully about clients’ life expectancy, but, in most cases, they simply assume, as a given, that a client will live to age 95, Mastrogiovanni said.
