Income Planning and Health: Life Expectancy Affects Saving

A healthy 50-year-old U.S. man has a 50% chance of living to 88, according to Ron Mastrogiovanni, the president of HealthView Services.

If he has diabetes, that will cut his life expectancy to 77. He might need only $1.45 million in total income to handle retirement, or $1.74 million less than he would need if he were healthy.

HealthView develops life expectancy forecasts to estimate how much advisors’ clients will spend on health care. It also develops health care spending forecasts to help advisors get clients’ income planning and asset planning right.

Mastrogiovanni thinks advisors will want the tools once they understand just how much life expectancy affects what clients need to save for retirement.

“Having a number that’s based on actuarial analysis makes clients feel so much more comfortable than just picking an arbitrary number,” Mastrogiovanni said.

What it means:  COVID-19 reminded advisors that life expectancy is a critical factor in any kind of personal planning.

Now, advisors might start making use of life expectancy forecasting tools a routine activity.

HealthView: HealthView is a Danvers, Massachusetts-based health care cost-forecasting firm that started up in 2008.

It analyses 500 million health insurance claims per year to track trends in health care spending.

It can then use the data to estimate how long advisors’ clients will live and how much the clients will spend on commercial health insurance, Medicare premiums, long-term care services, out-of-pocket costs and other health care-related costs.

The typical people analyzed are 401(k) plan participants ages 25 through 65 and individual financial services clients who range in age from their 40s to their 80s.

Advisors and life expectancy: Advisors should think carefully about clients’ life expectancy, but, in most cases, they simply assume, as a given, that a client will live to age 95, Mastrogiovanni said.

No life expectancy forecast is certain, but, if HealthView helps an advisor consider life expectancy, “at least decisions are being made based on factual numbers,” he added.

Diabetes: Mastrogiovanni sees diabetes as an example of a condition that shows why careful thinking about life expectancy is important for advisors and their clients.

He notes, for example, that having diabetes cuts the life expectancy of a 55-year-old woman to 82, from 90, and from the benchmark of 95 that a typical advisor might use.

The acute care costs for that woman might be $271,000 if she lives to 82 and $797,000 if she lives to 95.

“You’re looking at a $500,000 difference,” he said.

Clients with a relatively short life expectancy might still have to plan for the possibility that they will live longer than expected, but they may end up having more cash to spend in the present.

Doctors’ recommendations: Mastrogiovanni said one reason to offer clients life expectancy estimates is that they might encourage some clients to take better care of themselves.

For people with diabetes, he said, following doctors’ orders might increase life expectancy and lifetime income needs but slash health care spending.

For a 55-year-old male with diabetes, complying carefully with doctors’ advice can increase life expectancy from as low as 72 up to 83.

“Money and life expectancy move people to take action,” he said. “If more people knew about the cost of not complying with doctors’ recommendations, I think it would have an impact on them.”

Ron Mastrogiovanni. Credit: HealthView