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4 Ways Wellness Can Cost Annuity Clients a Fortune

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(Related: What You Think About the Value of Life Is All Wrong)

Economists have been paying more attention to the reality that living longer than expected, and outliving retirement assets, is as serious a risk as dying early.

Analysts estimate the likely effects of successful wellness and condition management efforts on people’s post-retirement finances in a new paper distributed by HealthyCapital and the Insured Retirement Institute (IRI).

HealthyCapital is a population health management alliance organized by Mercy, a health system based in St. Louis, and HealthView Services, a Danvers, Massachusetts-based health data company.

The analysts prepared the report to show how annuities can be used in post-retirement health cost planning, and how managing health risks well can lead to savings. But the analysis also shows something else: that people who manage health risks well had better be prepared to live longer.

The analysts show, for example, that, for a woman who is 30 years old today, managing four types of common health risks well can save $120,030 to $437,294 between now and retirement.

Cathy Weatherford, president of IRI, said in a statement that staying healthy is a great way to make retirement savings last longer. ”Retirement health care premiums and out-of-pocket costs are ‘guaranteed’ expenses that will rise faster than inflation,” Weatherford said.

But the analysts also show that managing the four health risks well may add three years to six years of additional life expectancy. That could mean about $200,000 and $400,000 in extra living expenses for clients who spend about $70,000 per year.

The analysts describe a hypothetical client: Susan. If Susan plans well, and buys an annuity with lifetime benefits, she can use the annuity payments to cover her expenses for the rest of her life if she lives longer than her original projected life expectancy, the analysts write.

In that scenario, access to lifetime annuity benefits turns the cost into a bonus: Susan spends less on health care, gets to live longer, and has annuity income she can use to pay for the extra years of life.

A link to a copy of the paper is available here.

For a look at how managing those risks well, rather than at the average level, can improve a 30-year-old woman’s expected years of life, see the data cards in the slideshow above.

— Read Budget Surgeons Might Harvest Your Clients’ Lifespanon ThinkAdvisor.

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