A critical piece of information that underlies every retirement income plan is the client (or clients’) life expectancy. That estimate influences portfolio allocations, income withdrawals, and spending patterns. In most cases, however, the forecast is a rough guess, at best. At the most basic level you can take a number from the IRS’s tables. If you want more precision, you can ask clients about their family history and the state of their health, assuming clients are comfortable sharing that information with you.
If you want a more precise forecast, the “Customized Longevity Planning Report” (CLPR) from 21st Services (www.21stservices.com) could be the solution. According to 21st Services’ CEO Jack Kettler, the company was originally founded to produce life expectancies for the life settlement industry. Because the estimation process can be used in multiple instances, the company established a financial planning services division, which offers the CLPR.
The CLPR’s results are based on an underwriting process that reviews the client’s medical, personal and family history. The cost varies depending on how the client’s health information is gathered:
? Platinum CLPR: 21st Services gathers all medical records ($49) or the planner or the client gathers the medical records and provides them to 21st Services ($295)
? Silver CLPR: 21st Services gathers the information in a phone interview with the client ($110)
? eCLPR: The client provides the information online at 21st Services Web site ($60).
According to the company’s website, the report provides 50 percent, 30 percent and 10 percent survival probability estimates, expressed as an age and shown in a chart that displays the client’s longevity curve compared to a standard mortality curve. In addition, the report shows the main conditions on which the results were based. It includes a discussion of potential improvements the client could make–lose weight, exercise more, etc. -and how much these changes could extend life expectancy.
From an advisor’s perspective, a counterargument could be that it’s more prudent to always assume the client will live to a very old age. Kettler disagrees with that approach. Given what’s happened in the markets lately, he notes, the client probably just lost anywhere from 20 percent to 40 percent of his portfolio. If the advisor planned for the client to reach 105 and needed X number dollars a month to live, how will the reduced portfolio still generate that amount until the client reaches age 105?
“If your life expectancy is really only 80, you might not have to change your method of living at all,” says Kettler. “So I think we have an obligation as financial professionals to try to give the client the best answer we can give about how their assets could be used.”