BY  TED GODBOUT

A new report out this week provides an interesting take on whether it makes sense for retirees and near-retirees to base their retirement planning under the industry-wide assumption that they will live to age 95.

Instead of simply using age as a factor in determining how much to save and spend for purposes of retirement planning, the report by HealthView Services examines the financial impact for clients of planning to age 95 versus beginning the discussion using actuarial longevity based on health conditions.

With 95% of Americans older than age 60 having at least one chronic condition, the report shows average actuarial life expectancy for those with common health conditions is significantly lower. For the 30% of retirees who live with diabetes, the probability of reaching age 95 is less than 1%. Moreover, even the healthiest 5% of retirees only have a one-in-five chance of reaching this age.

The report draws on 266 million cases to reveal average life expectancy for healthy 65-year-old retirees, those with high cholesterol, high blood pressure, cancer, diabetes and obesity, as well as tobacco users. It also highlights actuarial probabilities that clients with a range of conditions will reach this benchmark.

Longevity Differences

As an example, the report shows a 65-year-old man who has reached his Income Replacement Ratio (IRR) goal based on age 95. Using an industry average IRR of 80%, a healthy 65-year-old man who earned $100,000 pre-retirement in 2023 would need $80,000 in retirement income in 2024 to maintain his standard of living. Assuming a 6% annual return on his portfolio, Social Security benefits based on working income, and a 3% inflation rate, he would need $1,103,328 in savings to meet his lifetime IRR goals, assuming he lives to age 95.

But after being diagnosed with high blood pressure, his longevity expectation changes to age 86. As such, he would potentially be able to spend an additional $447,000 in retirement based on living to age 86.

“The starting point for building longevity into retirement plans should be actuarial data based on health condition,” said HealthView Services CEO Ron Mastrogiovanni. “It provides a foundation for clients and advisors to choose the life expectancy they incorporate into planning tools to address longevity risk, and helps set realistic retirement horizons for the vast majority of individuals over age 60 with chronic conditions.”

In another case study, the report shows that a 55-year-old woman who has diabetes and is aiming to meet her IRR savings goal based on her actuarial longevity would not require the same level of savings as her healthy counterpart, who is expected to live significantly longer.

“Our experience shows that incorporating longevity data that clients find credible into the planning process is most likely to drive savings and spending behaviors,” added Mastrogiovanni. “Importantly, it provides a basis for conversations, planning decisions, and product choices to meet needs in retirement.”

The paper further observes that for clients of all ages, longevity is one among several considerations that need to be taken into account in the planning process. The needs of a surviving spouse, ensuring funds are available for long-term care, the desire to leave a legacy, along with longevity risk all need to be part of the conversation.

“Using actuarial longevity versus age 95 as a planning goal is not a zero-sum game,” Mastrogiovanni emphasized. “Since clients have different risk appetites, levels of wealth, and sources of retirement income including Social Security, using health-based actuarial life expectancy for planning provides a way to dynamically balance the goals of living life to the fullest and managing longevity risk.”

HealthView Services is a provider of retirement healthcare cost data, Social Security optimization, and long-term care retirement planning and portfolio management tools for the financial services industry. The firm also provides an array of planning apps, from 401(k)-focused to advisor-facing, all with the goal of creating funding solutions to cover future in-retirement health care expenses.

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