Data, methodology updates reveal probabilities of life expectancy, and help with income planning
WASHINGTON and SCHAUMBURG, IL (October 22, 2019)—The American Academy of Actuaries and the Society of Actuaries (SOA) have updated the jointly developed Actuaries Longevity Illustrator (longevityillustrator.org), a web-based tool that allows users to quickly generate an estimate of how long they might live in a few simple steps.
“With the Actuaries Longevity Illustrator, users can generate interesting results about the probabilities of living to different ages, which is particularly useful for understanding the risk of outliving income, or longevity risk, when planning for retirement,” said Academy Senior Pension Fellow Linda K. Stone, MAAA, FSA. “The updates improve the user experience.”
Language on the illustrator website has been clarified to help users effectively use and understand its results, and back-end data and methodologies used to calculate results have been updated. The mortality tables used to generate the illustrator’s results have been updated from the U.S. Social Security’s 2010 to 2016 tables, and the mortality improvement scale has been updated from SOA MP-2015 to MP-2018. Changes have also been made to the factors used to adjust for smoking and health status.
An important perspective to the retirement planning conversation
“The Actuaries Longevity Illustrator adds an important perspective to the retirement planning conversation—namely, longevity risk,” said Lisa Schilling, FSA, EA, FCA, MAAA, SOA retirement research actuary. “It’s very risky to consider just one point in time for how long you’ll live. Instead, individuals and couples should look at the potential for either one or both of them to live to a variety of points and the associated risks they face.”
Welcome to the Actuaries Longevity Illustrator
Financing for retirement can be complicated, and there are many factors that must be taken into account. One of the most important factors, which is sometimes misunderstood, is your longevity-that is, how long you might actually live. This is different from your life expectancy, which is how long an individual of your age, gender, and health would be anticipated to live on average. There is a significant chance that you will live for many years beyond the average, and you should consider this possibility when thinking about your retirement. Reflecting on this possibility will allow you to consider the risks of outliving your financial resources, i.e., the chance of running out of money during your lifetime, which is referred to here as retiree financial longevity risk. This Actuaries Longevity Illustrator (“ALI”) helps you do that by letting you see how long you might live. Take a look. You might be surprised by the results!
If your retirement plans involve two people, the considerations become even more complex. The ALI addresses two crucial concerns: “How long can we expect to live as a couple?” and “By how many years might one of us outlive the other?”
The ALI has been developed as an educational tool by the American Academy of Actuaries and the Society of Actuaries. Although the ALI has been designed to be used to estimate longevity for retirement, it may have additional applications. While the ALI provides a reasonable approximation, you or your spouse/partner’s actual lifetime can differ significantly from these estimates, either above or below. The ALI is not designed to address your finances; this includes your investments, your earning potential and your anticipated expenses.
How it works
With information you provide based on a few questions about your health, smoking habits and demographic characteristics, the ALI will produce tables and graphs showing the likelihood that you (and your spouse/partner, if applicable) may live to certain ages. In addition, the ALI provides information on the number of future years that you might expect to live, as opposed to living to certain ages. The tables and graphs can be used to help you understand your potential retiree financial longevity risk.
To use the Actuaries Longevity Illustrator, an individual or a couple enters some basic information about themselves—including their age, gender, and general health status—and the tool generates easy-to-read charts showing the likelihood of living to certain ages. For instance, a couple can determine the chance of living a given number of years together as well as the likelihood that one or the other will survive additional years. The Actuaries Longevity Illustrator does not provide financial advice but the results can be useful for individuals or couples in understanding their financial needs in retirement. Access the tool at www.longevityillustrator.org.
The American Academy of Actuaries is a 19,500-member professional association whose mission is to serve the public and the U.S. actuarial profession. For more than 50 years, the Academy has assisted public policymakers on all levels by providing leadership, objective expertise, and actuarial advice on risk and financial security issues. The Academy also sets qualification, practice, and professionalism standards for actuaries in the United States.
With roots dating back to 1889, the Society of Actuaries (SOA) is the world’s largest actuarial professional organization with more than 32,000 actuaries as members. Through research and education, the SOA’s mission is to advance actuarial knowledge and to enhance the ability of actuaries to provide expert advice and relevant solutions for financial, business and societal challenges. The SOA’s vision is for actuaries to be the leading professionals in the measurement and management of risk.