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Longevity and client objectives for retirement

22 April 2020

Life expectancy is not the same as the likely age at death. Jackie Lockie, head of Financial Planning, CISI looks at why and what impact it has on financial plans.

This article was first published in the April 2020 issue of professional Paraplanner.

In January 2019 the Institute of Fiscal Studies (IFS) issued a working paper W19/02 about how individuals severely underestimate their life expectancy. The research that Jannette Weir at Ignition House has done with ‘middle England’ individuals backs this up. All this probably doesn’t come as any surprise to you but it might have a bearing on the financial plans you create.

The IFS has stated that the population of over 90s will increase by 138% in the next 30 years. Add to that the research showing that healthy life expectancy has increased, and “Houston, we have a problem!”

Office of National Statistics (ONS) found that between 2000-2010 longevity improved by 3% but that between 2010 and 2020 it only improved by 0.8%. That’s quite a difference isn’t it? So why is this? The main reason was that the improvements in circulatory related treatment improved mortality rates significantly. Things like the wider use of statins and major surgery becoming more mainstream, have all contributed.

But life expectancy is not the same as the likely date of death based on a client’s current age. For example, a male client age 65 today has an average life expectancy of 86 but statistically, because of these improvements, he has a likely age at death of 91. And some of those clients will live to 104!

If you look at the mortality tables created in the 1970s they are significantly different than what we see today because they predicted much earlier ages at death. So, these 1970s tables might be part of the reason why people particularly aged 50+ have an unrealistic expectation of the date of their demise.

Cashflow analysis beyond age 100?

What are the implications of all this? Do we need to start thinking about running cashflow analysis past age 100? There are implications in doing so.

Increasing the lifetime cashflow period will mean that clients might not achieve their objectives. As a consequence, they would have to invest more, take more risk and/or cut back on their expenditure now.

Additionally, might increased longevity impact the quality of our lives? Might it impact our mental health, and crucially could it impair our ability to make decisions and understand them? Statistics indicate that the quality of our lives close to our death tend to hold up well; we don’t, at the moment anyway, seem to have extended periods of ill health before the end comes. But this still means that some will.

Loneliness is likely to become more of an issue than ever before. How will we as a nation, in our communities that are so disconnected, cope with our elderly who feel this way? AI is potentially a helping hand here. There are robotic companion toys in Asia now that are designed to monitor vital signs, remind us to take our tablets and can even alert our GP or family members if we fall or become unwell. These companions are starting to have a positive impact on some individual’s mental health too with the interaction that they bring.

More than financials

It certainly seems to me that we should start to consider increasing the age for cashflow planning, certainly within the next 5-10 years – but one big thing concerns me. Our elderly at the moment tend to press on regardless of how they feel and so talking about their mental health might become more difficult.

Financial plans for those who have ageing parents are going to need more planning by paraplanners in the future to help ensure the elderly of tomorrow are healthy, cared for and stimulated.

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