Life Expectancy Analysis: By Daniel D. Joss, MBA, CFP®
I recently attended a session at the NAPFA West conference titled “Life Expectancy Analysis.” It provided attendees with some very interesting points to consider, in particular, our own mortality.
As financial planners, we are sometimes asked to make assumptions about clients’ life expectancies. To assist us with that process, we can turn to generic data provided by the federal government: IRS Rule 2002-62 provides a life expectancy table used to determine annual required distributions; IRS Table CM90 (1999) provides actuarial values relating to estate, gift, and charitable issues; and Treasury Regulation Subchapter A, Sec. 1.72-16 provides the life expectancy table used for annuities and life insurance contracts purchased under qualified employee plans.
Each of these life expectancy tables provides a different answer to the question “Given that I am a 65 year old male, what is my additional life expectancy?” After consulting the above-listed tables, the answers are 21 years, 17.2 years, or 20 years. Do these answers provide any comfort to the 65 year old? Do they provide us with helpful information for planning purposes? And does it help to know that commercial life expectancy companies may offer estimates that are much longer or shorter than those projected by these tables?
Let us consider why we may wish to estimate life expectancy in general.
Retirement planning: Will my money last as long as I do? Am I being too frugal? Should I give it to my beneficiaries while I’m living?
Long-term care planning: Is there a realistic need for LTC insurance? How much money will I need?
Estate planning: Should changes be made depending on how long I may live? How long will my assets need to last to provide for a spouse or an adult child? How many years will my estate appreciate during my lifetime, and how large will the estate, and estate tax burden, likely be? Should I give to my beneficiaries while I’m living?
Charitable planning: Can I be more generous? Should I employ more sophisticated charitable planning techniques?
Life settlement planning: Should I retain or discontinue a life insurance policy?
Social Security benefits: Should I take my benefit before or after full retirement age?
Many people, when informed that they have a life threatening illness or disease, ask their physician “How long do I have?” The questions people ponder when confronted with their own mortality often have more to do with the quality of their life, rather than its longevity. “Have I accomplished what I wished to accomplish with my life? Do I regret not doing anything? Are my relationships in order?” We must not consider these questions only at life’s end, but reflect upon them often and act with vigor throughout our lifetime.
“Would you like to know your life expectancy?” This question brought many responses and quite a debate among the financial planning professionals present at this conference session. The range of responses was considerable, from “Clients will never want to know this information” to “It is our fiduciary obligation as planners to provide the most accurate information available.” Life expectancy estimating is a relatively new service offering. The companies providing this information are growing; their databases are increasing, and the estimating procedures becoming more advanced and sophisticated. “Would you like to know your life expectancy?” We invite your response.
Life Expectancy Analysis
May 3, 2009
Life Expectancy Analysis: By Daniel D. Joss, MBA, CFP®
I recently attended a session at the NAPFA West conference titled “Life Expectancy Analysis.” It provided attendees with some very interesting points to consider, in particular, our own mortality.
As financial planners, we are sometimes asked to make assumptions about clients’ life expectancies. To assist us with that process, we can turn to generic data provided by the federal government: IRS Rule 2002-62 provides a life expectancy table used to determine annual required distributions; IRS Table CM90 (1999) provides actuarial values relating to estate, gift, and charitable issues; and Treasury Regulation Subchapter A, Sec. 1.72-16 provides the life expectancy table used for annuities and life insurance contracts purchased under qualified employee plans.
Each of these life expectancy tables provides a different answer to the question “Given that I am a 65 year old male, what is my additional life expectancy?” After consulting the above-listed tables, the answers are 21 years, 17.2 years, or 20 years. Do these answers provide any comfort to the 65 year old? Do they provide us with helpful information for planning purposes? And does it help to know that commercial life expectancy companies may offer estimates that are much longer or shorter than those projected by these tables?
Let us consider why we may wish to estimate life expectancy in general.
Many people, when informed that they have a life threatening illness or disease, ask their physician “How long do I have?” The questions people ponder when confronted with their own mortality often have more to do with the quality of their life, rather than its longevity. “Have I accomplished what I wished to accomplish with my life? Do I regret not doing anything? Are my relationships in order?” We must not consider these questions only at life’s end, but reflect upon them often and act with vigor throughout our lifetime.
“Would you like to know your life expectancy?” This question brought many responses and quite a debate among the financial planning professionals present at this conference session. The range of responses was considerable, from “Clients will never want to know this information” to “It is our fiduciary obligation as planners to provide the most accurate information available.” Life expectancy estimating is a relatively new service offering. The companies providing this information are growing; their databases are increasing, and the estimating procedures becoming more advanced and sophisticated. “Would you like to know your life expectancy?” We invite your response.