Longevity is an extremely important concept for the insurance industry, which is one reason that actuaries earn between $150,000 and $250,000 per year. While billion-dollar companies are paying close attention to these details, many individuals preparing for retirement fail to calculate and understand these probabilities, even though they can have an enormous impact on their financial livelihood during their retirement years.

The American Academy of Actuaries and the Society of Actuaries recently released a new online tool to help financial advisors and their clients visualize how long they’ll live in order to plan for their retirement years. The Longevity Illustrator is available for free to anyone and generates three different illustrations designed to convey longevity using basic data inputs including a person’s gender, birth date, smoking status, and overall healthiness.

Let's take a look at how financial advisors can leverage this new tool as well as some others that may be useful for helping clients by factoring in a variety of other data points. (For related reading, see: How Advisors Can Help Address Longevity Risk.)

Using This Data

The Longevity Illustrator is designed to help consumers visualize estimates of life expectancy rather trying to convey the information through words or text. Often times, people view their life expectancy as a single number or age rather than a graph of probabilities. A person may also anchor their personal expectations based on the death of a relative or acquaintance rather than based on more accurate statistics compiled by actuaries.

Financial advisors can use this data to demonstrate the importance of saving and investing to clients, as well as set expectations for just how much they ought to save. Certain Social Security strategies may also depend on life expectancy in terms of deciding whether to delay taking government benefits. Visual graphics can help convey information far more effectively than simply telling clients the probabilities and help them better internalize the concepts. (For related reading, see: How Much Should You Have in Your 401(k) to Retire?)

According to the Longevity Illustrator website:

You will answer a few questions about your health and demographic characteristics. The Longevity Illustrator will then produce charts that allow you to see the probabilities associated with how long you (and your spouse/partner, if applicable) may live, which will help you understand the likelihood that you may live for a much longer time than your life expectancy would suggest. This will allow you to consider the risks of outliving your financial resources, i.e., the chance of running out of money during your lifetime(s). You can view the results as either charts or as tables of values. You can also print out a summary sheet of the information provided by the Longevity Illustrator.

Alternative Calculators to Check

The Longevity Illustrator is a great tool for visualizing life expectancies, but it’s not the only tool available to financial advisors to convey this type of information.

University of Pennsylvania researchers have developed arguably the most advanced life expectancy calculator that incorporates a number of different factors into their analysis. The tool is now provided by Abaris and includes the statistical probabilities of living until certain ages, an estimated life span, and the average life spans of peers. The researchers’ original website also contains detailed information on the calculations performed by the tool. (For related reading, see: Life Expectancy: It's More Than Just a Number.)

Another popular set of tools is available from the Social Security Administration. While these are simpler calculations, they contain more financially-geared tools to help with retirement planning and Social Security income. The Retirement Estimator helps individuals determine how much they’ll receive from Social Security based on their actual earnings records. These estimates can be used in conjunction with life expectancy calculations.

Finally, insurance companies like John Hancock have also developed life expectancy calculators that factor in other potentially relevant information. For instance, John Hancock’s Life Expectancy Calculator includes fields for blood pressure, cholesterol, and driving habits, since those are factors that have been shown to influence life expectancy. The downside is that the calculator only provides an estimated age rather than probabilities.

The Bottom Line

Longevity is an important topic when it comes to financial planning, since money saved during working years must finance retirement. Often times, people fail to appreciate how long they may actually live and, as a result, may fall short on retirement savings and investing. Financial advisors should leverage tools like the Longevity Illustrator to convey these important concepts and ensure that their clients are on the right path to saving and investing. (For related reading, see: Retirement Savings: How Much Is Enough?)

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