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What Happens When Aging Science and Retirement Planning Converge?

Each of your clients is unique. Their life experiences and choices are different than everyone else, and their lifespan and healthspan will also likely be different than average.

So why is it that so many important financial decisions are still being made by financial advisors based on generic life expectancy tables that assume everyone is average?

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For the first time advisors can now reveal the unique attributes of individuals so that financial planning is based on science rather than centuries-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 centuries.

However, science is catching up and beginning to play a big role for those 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 their 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.

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.

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

Social Security

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

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.

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.

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.

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.

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.

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The Wealthspan Difference…customized, more precise client retirement planning

After a few preliminary information gathering questions, the financial advisor will walk their client through a series of questions that will help us identify their scientifically determined lifespan calculated using sophisticated algorithms. The ensuing on-screen results and detailed analysis report allows for a better, more personalized retirement plan.

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The answers to the questions will allow a financial advisor to see their client’s specific scientifically determined Lifespan (LS) as opposed to using a generic estimate from a life table that lumps everyone together into averages.

The financial advisor will be able to show clients their probability of living to age 90 and above, including 100+. If someone has a high probability of living to an exceptionally high age, but also has a high probability of needing assistance for many of their later years, the financial advisor can make better decisions for their clients concerning the types of products that should be recommended to help the client meet their income and assistance needs throughout their long lifespan.

Finally, clients will learn how many years of their life expectancy will likely be healthy vs. years where they will need a level of assistance with activities of daily living. This called Healthspan (HL).

Results will be a valuable resource for the overall, holistic planning process, for determining Social Security filing strategies, income planning, insurance planning, investment planning, tax planning, estate planning and long-term care planning.

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barb and dave

Making it personal – creating a client experience unlike anything they’ve seen from any other financial advisor.

Meet Barb and Dave

Let’s explore a typical client situation where the use of an aging science calculator will make a big difference in how you help a couple plan for retirement.

Assume you’re helping a couple. Dave is 65 and Barb is 62. They are newly retired and looking for help planning for their financial future.

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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.

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Wealthspan…your partner for business growth

MyWealthspan is a powerful, more precise tool for financial advisors. It provides an opportunity to create a personalized client experience which will differentiate the advisor from competitors, help grow their business, and provide better retirement planning recommendations for their clients.

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MyWealthspan is offered by Wealthspan Financial Partners, an organization formed to bring new, innovative marketing and planning tools to financial advisors.

The MyWealthspan.com tool is available at no charge to advisors who write insurance and annuity business through Wealthspan Financial Partners.

Please reach out to Wealthspan Financial Partners for more information on how to gain access.

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