If I could live to be 100…
by P.E. Kelley
An associate of mine, a tax planning attorney, when asked about the emergence of today’s longevity-risk, is fond of saying ‘you do not want to run out of money before you run out of breath.’ And yet, this may be one of the deepest fears your clients have when contemplating their own mortality. Moreover, they often do not fully appreciate just how underprepared many are in generating a viable post-retirement income stream.
So, within the confluence of medical and technological innovation, the sheer volume of our retiring baby-boom cohort and the ever-emerging reality of living beyond 100, today’s financial planners are tasked, more than ever, to create useful and actionable income solutions for their clients.
Glen Franklin, ChFC, RICP is vice president of RIA & Lead Gen Strategy and Research at Jackson National Life Distributors LLC. He shared with us the findings of his company’s 2023 study on the longevity risk, part of its Security In Retirement series, conducted in partnership with the Center For Retirement Research at Boston College. Among a number of troubling revelations, this data uncovered a stark and startling fact: a vast majority of investors inaccurately predict their own life expectancies, putting their retirement income plans at risk.
PEK: Assuming that the standard for measuring longevity begins with statistical mortality tables, what criteria do our clients actually use when tasked to gauge their own life expectancy? Your research suggests a worrisome degree of miscalculation.
GF: Jackson recently released key findings from our comprehensive study on how retirees and financial professionals perceive retirement risk and the possibility of outliving income. This study is part one of Jackson’s Security in Retirement Series conducted in partnership with the Center for Retirement Research at Boston College. This multi-phase research effort explores the potential threats to financial security in retirement and how financial professionals and retirement investors can more effectively manage these threats.
Overall, people tend to look first at their parent’s age of death, and many also consider media coverage of life expectancy. The youngest cohort in our study—whose parents are more likely to still be alive—consider medical professional opinions and non-parent relatives’ age of death as well. Almost all of these are anecdotal in that they don’t factor in the actual health and life experience of the person. Even the medical opinion may not be based in current gerontological expertise.
PEK: How accurate, or not, is a reliance on family histories as an indicator of mortality? Are people misinformed about this?
GF: Family history is certainly an important factor to consider but should be looked at in the context of increasing life expectancies overall. So, for example, if your grandparents lived well into their 80s and your parents lived into their 90s, you might envision yourself living into your early 100s. Or, if there is an age-related disease for which you have family history, you would also want to take into account the latest treatments and where they may evolve in the coming years.
PEK: Can you discuss the interplay of some key factors of longevity: genetics, environment and lifestyle?
GF: Our research did not get into those factors, but other research points to the importance of considering those things as you develop an idea of how long you will live.
PEK: What role, if any, does wealth play in an individual’s mortality?
GF: Wealth is correlated with longevity in that the more wealth you have, the longer you tend to live. There are many reasons that relationship exists, and one of the most significant is having the resources to access advanced healthcare expertise and treatments.
PEK: Using a tool like the Society Of Actuaries (SOA) Longevity Illustrator, can financial planners, in effect, ‘interpolate’ a client’s mortality, starting with baseline mortality data, such as SSA data, and then factoring in lifestyle datapoints?
GF: Those tools can be helpful in conveying to the client the likely range of life expectancies they should consider in developing their retirement plan. It’s important to remember, however, that death is first and foremost a deeply emotional issue. Thus, there is an opportunity for the financial professional to assess the emotional dimension and possibly involve other professionals to address any issues that may get in the way of the client planning effectively. If someone is emotionally unprepared to consider their longevity, the facts are unlikely to persuade them. Facts and logic are critical for planning, but you have to address the feelings first.
PEK: Is it an advisable strategy for a financial planner to project 90+ or even 100+ as a starting point for diminishing the longevity risk?
GF: A longer time horizon is more conservative and less likely to leave the client subject to significant longevity risk. Since longevity risk is composed of both wealth and health inputs, it’s important to consider the circumstances of each client individually.
PEK: Where does longevity risk rank in the minds of clients and investors?
GF: Among retirement-related concerns, longevity risk is only a moderate concern. The death of a spouse/partner, the need for long-term care, and the value of retirement savings not keeping up with inflation were the three most significant concerns noted in this study. About one fifth indicated some level of concern over the possibility of outliving their retirement savings or being unable to maintain their lifestyle throughout retirement—and, conversely, about one third were not concerned about those outcomes.
PEK: On average, do clients and investors have a realistic understanding of how long they might actually live?
GF: On average, only 12% of the retirement savers surveyed for our study are estimating a life expectancy within one year of the average for their age and gender. And surprisingly, around 60% of people in the study seem to be overpredicting their life expectancy. That may result in a different set of risks such as putting off planning for—and funding—long-term care. Ultimately, since we cannot know our actual longevity, it’s important to work with a financial professional to create a plan that is robust across a range of scenarios.