Does it make sense to plan to age 95?

By Susan Rupe

Financial advisors have long followed the industry rule of thumb in planning for clients to live to age 95. But is that always the best strategy? A new report said that with 95% of Americans older than 60 having at least one chronic condition, the average actuarial life expectancy for those with chronic health conditions is significantly lower.

HealthView Services’ report, “Retirement Planning, Longevity and Health: Does It Make Sense to Plan to 95?”, provides health-based actuarial data that draws on 266 million cases to reveal average life expectancy for healthy 65- year-old retirees, as well as those with high cholesterol, high blood pressure, cancer, diabetes and obesity, in addition to tobacco users. It also highlights actuarial probabilities that clients with a range of conditions will reach this benchmark.

The report highlights the financial impact for clients of planning to age 95 versus beginning the discussion using actuarial longevity based on health conditions. In one example, a 65-year-old man has reached his Income Replacement Ratio goal based on age 95, but after being diagnosed with high cholesterol, changes his longevity expectation to 86. This man would potentially be able to spend an additional $447,000 in retirement.

In another case study, the report shows that a 55-year-old woman who has diabetes and is aiming to meet her IRR savings goal based on her actuarial longevity would not require the same level of savings as her healthy counterpart, who is expected to live significantly longer.

“I think what’s important in this report is that there should be a baseline that gets used in the conversation that the advisor is having with the client,” Ron Mastrogiovanni, HealthView Services CEO, told InsuranceNewsNet.

“I believe it makes sense to use actuarial data, versus just picking numbers out of the sky. Because when you look at the statistics, 95% of people over the age of 60 have at least one chronic condition, and 50% of people in that age group have two or more chronic conditions, and each chronic condition affects life expectancy. By using actual statistics, and sitting down with the client, advisors will get better results in terms of the client taking action and feeling comfortable taking action.”

Having a chronic condition can shave years off a person’s life expectancy. The report breaks down some of those conditions and their impact on how long someone can expect to live.

“What I often hear from clients is that they refer back to their parents,” Mastrogiovanni said. “Things like, ’My father lived until his mid-70s and my mother died in her early 80s, so I don’t see any reason for me to plan beyond my early 80s.’

“We know from an actuarial perspective that just because your parents didn't make it to 95 doesn't mean you're not going to make it. What's more important is what are your conditions.”

Advisors must talk about life expectancy

Mastrogiovanni said advisors and clients talk about having enough savings to last a long time but don’t often discuss the client’s health conditions. A client with a chronic health condition who has a reduced life expectancy may not need their savings to last until age 95. But they may need to have enough savings to pay for the health care costs associated with their chronic condition.

The HealthView Services report notes that for clients of all ages, longevity is one of a number of considerations that must be taken into account in the planning process. The needs of a surviving spouse, ensuring funds are available for long-term care, the desire to leave a legacy, along with longevity risk all need to be part of the conversation.

“Using actuarial longevity versus age 95 as a planning goal is not a zero-sum game,” added Mastrogiovanni. “Since clients have different risk appetites, levels of wealth, and sources of retirement income including Social Security, using health-based actuarial life expectancy for planning provides a way to dynamically balance the goals of living life to the fullest and managing longevity risk.”

Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected]. Follow her on X @INNsusan.