Last week I was in my dentist’s waiting room and looked down at his table full of magazines and spotted the cover of the May 2013 issue of National Geographic. The cover said:
“This baby will live to be 120*”
“It’s not hype, new science could lead to very long lives.”
A few weeks ago my wife, Rosanne, and I were driving into Manhattan for a meeting and we noticed an insurance company ad on a billboard outside of the entrance to the Midtown Tunnel. The ad said the following:
“The first person to live to age 150 is alive today.”
This week, I spotted a story in The Wall Street Journal about Jiroemon Kimura, of Japan, who died at the age of 116 and 54 days. I guess when you reach that age, the days also count. He is the third person on record to live past age 115.
As financial planners, Roe and I have been having longevity discussions for almost 20 years. We have always been conscious of the assumptions we make in writing plans for our clients. What is a reasonable mortality age that we should use in planning for our clients? We want to be conservative and be reasonably assured that our clients will not outlive their money. On the other hand we don’t want to create an unnecessary burden for our clients and have them saving so much money that they won’t enjoy life while they can.
Some Historical Perspective
When I first started this business in 1986, I made the assumption that a reasonable life expectancy was age 85. I was being conservative because life expectancy statistics back then said men would die in their mid 70’s and women in their late 70’s to early 80’s.When Rosanne joined my firm in 1995 she began noticing people living longer and she convinced me to increase that assumption to age 90. After all, we had clients who were approaching 90 and some clients who had parents or other relatives living well into their 90’s.
At the turn of the century, I was asked by TIAA/Cref, a well respected insurance company and pension plan manager for many of our country’s hospitals and universities, to join their Financial Advisor Advisory Board. Over the next three years I was fortunate to have received many presentations by TIAA/Cref research staff on increased longevity. As a result of this Roe and I decided to increase our planning assumption to age 95, just to play it safe.
During one of our advisory board meetings I was eating lunch with the then Chairman and CEO of TIAA/Cref, John Biggs. John had started his career as an actuary with TIAA/Cref so he knew a thing or two about life expectancy. I asked John, “What age is TIAA/Cref using in their actuarial calculations for whole life policies?” He said, “You know Ron, actuaries are very conservative people. Right now our biggest fear is the human genome project. We can’t quantify the impact it will have on longevity, so we are using age 114.” I almost fell off my chair. Remember this was around 2002. So, when I returned to the office the next day, I communicated this information to Rosanne and we decided to raise our assumption to age 100. Oh yes, we would get plenty of pushback from clients over the years saying they will never live that long. Then we would ask them if they had anyone in their family blessed with longevity. When they gave it some thought in real terms (Aunt Martha is 98 and doing well), it seemed like a fairly reasonable, although, conservative assumption.
Now, the insurance company ad, the National Geographic story and Mr. Jiroemon Kimura have me thinking again. Is planning to age 100 enough? Perhaps, for right now, it is, but what will advances in science, medicine and technology bring to human longevity over the next 5 to 10 years? Stay tuned!
By Ron Roge