Overview

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What Happens When Aging Science and Retirement Planning Converge?

You are not a statistic…

You are unique, your life experiences and choices are different than everyone else, and your lifespan and healthspan will also likely be different than average. So why is it that so many important financial decisions are still being made based on generic life expectancy tables that assume everyone is average?

For the first time we can now reveal the unique attributes of individuals so that financial planning is based on science rather than decades-old thinking that assumes everyone is the same.

Medical and scientific breakthroughs in the last few decades have significantly changed our world. The one area where there hasn’t been much innovation is in the area of financial services and the way advisors help their clients plan for the future. The tools used today by most advisors are the same tools that have been used for decades.

However, science is catching up and beginning to play a big role for retirement investors and advisors who are looking to dramatically improve the way planning is done. The foundation for financial planning is a person’s estimated duration of life (referred to as Lifespan) and how healthy they’re likely to be in their later years (referred to as Healthspan). Advisors know these are foundational to sound financial planning, but few if any utilize the tools of science to generate such estimates.

Definitions

Lifespan = the observed or projected duration of life of an individual

Assisted Lifespan = the projected proportion of remaining years of life expected with some level of disability [ Assisted Lifespan = Lifespan – Healthspan]

Wealthspan = the link between accumulated wealth and expected lifespan

Positive Wealthspan = accumulated wealth exceeds the expected lifespan: This is what we all want – money to pass along at the end of our life

Negative Wealthspan = projected lifespan exceeds accumulated wealth: This is what we want to avoid – running out of money.

Neutral Wealthspan = projected lifespan matches expenses from accumulated wealth: This is ok, but the result is you leave no financial legacy for your family.

Considerations

The following are some of the important considerations impacted by lifespan and healthspan and will determine how you navigate to a positive wealthspan…

01

Social Security

When you claim Social Security and the method you choose can greatly impact the lifetime value of the payments you receive.

02

Portfolio Risk

Having a better understanding of your projected lifespan can help you determine how long you need to plan to have your assets last. This understanding impacts the amount of risk you may be willing to take.

03

Product Mix

Which financial products you choose when creating your financial plan can be greatly influenced by the risk you are willing to take. Someone with a long expected lifespan and low risk tolerance may choose to have a much smaller amount of their investments allocated to the stock market or may choose other alternatives, like annuities.

04

Income Expectations

If you have strong evidence backed up by science that you will live longer than average, you may change the amount of income you receive from your portfolio to extend how long your money will last.

05

Taxes

Taxes can take a big bite out of the income you receive, so knowledge of tax advantaged or tax-free income planning can be better determined with the benefit of a personalized lifespan and healthspan estimate.

06

Healthcare Expenses

Estimates of Healthspan help us determine how many years someone is likely to need assistance with some activities of daily living. This knowledge allows for planning for the associated expenses, which can be large.

Financial advisors who use this technique should be able to successfully, logically and mathematically create a plan that will have a higher level of success than one based upon government tables that don’t take into account the unique attributes of the individual.