A common planning technique is to run their plan out to age 95 for each spouse to make sure the plan works. However, it is unlikely that both Barb and Dave will live to age 95, leaving just a 3-year gap for Barb to handle financial decisions on her own when she may be in failing health at the end of her life.
Advisors who use this technique may be able to successfully, logically and mathematically create a plan that will have a high level of success based on the plan needs and risk/return metrics of the product mix.
However, the use of a randomly selected age 95 for both Barb and Dave don’t make the plan customized in any way for the clients and what their actual experience will look like.
People make decisions based on emotions and there is no emotion connected with a randomly selected lifespan applied equally to everyone that has zero consideration for the unique experience clients will face during the course of life. This is especially true for women who have a high likelihood of spending years without their spouse – they want a real, personalized plan.
One attempt now used by some advisors at getting closer to a more personalized plan includes the use of a generic life table published by the Social Security Administration to determine average expected duration of life based only on a person’s age and gender.
Using current methods and base tables, the life expectancy of Dave is estimated to be 18.4 years and Barb is estimated to live 23.3 years. This means the Dave can expect to live to age 83.4 and Barb to age 85.3, leaving Barb to plan for life on her own for about 5 years because Dave is 3 years older to begin with.
Helping Barb put a plan in place to get her comfortably through 5 years is a manageable task and wouldn’t come with a great deal of anxiety for her – that is, if they both fall in line with the averages. The problem is, most people aren’t average – so a plan like this, for most people, has a low chance of achieving a Positive Wealthspan scenario for your client.
Now let’s look at how different the plan would be using aging science.
Using a series of 21 scientifically determined questions used to estimate lifespan and healthspan, we can get a much better understanding of the experience Barb and Dave are more likely to encounter.
Dave has a high school education, is a former smoker and doesn’t get any exercise to speak of. These things have been scientifically determined to be predictors of a shorter life than average. So, instead of a base table life expectancy of 18.4 years, Dave has a likely lifespan of just 14.2 years and can expect to live to age 79.2.
On the other hand, Barb has a family history of longevity, has a college degree and exercises regularly. These things have proven to be predictors of a longer life. So, instead of the base lifespan of 23.3 years, the wife can expect to live 27.8 years to just shy of age 90.
This is significant!
What we have just revealed is that Barb is likely to outlive her husband by about 14 years rather than the 5 years estimated by using generic tables. This requires a totally different wealth plan.
Again, because decisions are almost always made emotionally, imagine the emotion Barb is feeling with this newfound knowledge and the comfort afforded both Barb and Dave as they plan their finances based on what is unique about them, rather than assuming they’re just like everyone else.
Imagine how much more an advisor needs to cater to Barb. Women are typically more conservative with investments and, in many instances, not the spouse who has been in charge of the family finances and investments, so imagine the bomb of emotion going off when she realizes she may be on her own to make decisions without her husband for 14 years or more instead of 5 years.
Husbands want to make sure their wife is taken care of.
Wives want a well thought out plan for how they will deal with the pressure of financial decisions without their spouse.
You get to bring it all together.
This is the power of the convergence of aging science and retirement planning. Better planning by making it personal.