Changing the face of financial planning with longevity forecasting

Relying on technology rather than tables might help planners create a better-fitting plan for their clients’ future

Changing the face of financial planning with longevity forecasting

For financial advisors and their clients planning for retirement, longevity is a difficult but crucial factor to weigh. Underestimate the time one has left, and they may outlive their nest egg; overestimates, on the other hand, could cause people to not enjoy their assets and remaining years as much as they should.

But as new technology emerges, planners may soon be able to answer two crucial questions — how long a client is likely to live, and how much of that time will be spent in relatively good health — with more certainty.

A recent report on Barron’s surveyed the different tools planners have at their disposal to help clients plan. Aside from determining how much someone should save for retirement, lifespans can also impact decisions on when to claim benefits, the type of annuity one should purchase, and the potential benefit of long-term care insurance.

For many retirees, lifespan tables are a good place to start. Statistics Canada has an online resource where people can check how many more years they are likely to live based on their gender and current age. But like other lifespan tables, StatCan’s provides estimates based on population-level data, and doesn’t take into account individual variables like lifestyle, health, or family history.

A quick internet search will turn up a variety of lifespan calculators that can provide more refined predictions. But the results can vary significantly depending on a calculator’s underlying methodology as well as the specific information it asks for.

Still, using life expectancy estimates to inform financial plans is only half the battle, argued one leading longevity researcher. “People say they want to live to be 100, but the number itself is less relevant than how healthy you are,” Jay Olshansky, a professor at the University of Illinois’s School of Public Health, told Barron’s.

That makes projecting health spans another important challenge for financial planners to tackle. And as the costs of healthcare continue to rise, the costs of unexpected emergencies and long-term care are among the most fearful unknowns for people in retirement.

Technological tools may help allay some of that uncertainty in the US. A new venture called Wealthspan Advisors is embarking on a platform rollout that would offer advisors access to lifespan-projection technology similar to what Olshansky and other researchers have helped develop for the insurance industry.

One key part of the system would have planners ask a series of questions and take a picture of a client’s face. From that photo, a program can provide an estimate for both lifespan and healthspan, as well as illustrations showing the potential impact of different lifestyle choices.

“We can learn a lot more from a photo than you can imagine,” Olshansky said, noting that the technology isn’t fooled by makeup and cosmetic procedures. “When you look young for your age, it usually means that you are aging at a slower rate.”

Planners can also get an additional data point from a client’s saliva. By subjecting a sample to genetic testing, it’s possible to detect the presence of genes that may influence a client’s longevity. Such an approach should offer more reassurance than simply asking a client how long they think they’ll live.


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