A
common reason to visit a REAL financial planner is to make certain you save
enough for retirement and to decrease the chance you will run out of money once
your paychecks stop. The outcome depends highly on one factor many financial
planners are reluctant to discuss – your health status.
Understanding
your health is important because it allows us to estimate your longevity. And
estimating how long you will live is important because it determines how much
you need to save and how long your money is going to last. After years of
attending financial planning conferences, I’ve learned that financial planners
determine longevity in a number of ways that do not take health history into
account. Many are uncomfortable talking about health issues, and I dream of the
day all financial planners discuss your health status as easily as they discuss
your financial status. So what do financial planners do now to determine your
life expectancy?
Age 100 for
everyone
A
speaker at one prominent conference instructed the attendees to use longevity
of age 100 for everyone. EVERYONE. I couldn’t help but question him, “Even if
your client is a 50 year old morbidly obese diabetic smoker with a history of
heart disease, you would use age 100?” He emphatically stood by his remark. You
never know the advances of medical science.
What
is the problem with this approach? People with significant health problems may
be cajoled into over-saving for their future. Most likely, the client will see
this approach as misguided, and move to another planner. It is a disservice to
people who have minimal to no chance of reaching three figures in the realm of
age.
Some
financial planners and financial planning software use a standard life
expectancy calculator that does not take any factors into account other than
your current age. For example, at age 49, there is a 50% chance I will live to
age 85.5. Given that I live a very healthy lifestyle, that number makes me a
little nervous. As a physician, I clearly know my life expectancy is easily age
100. However, if I have a history of heart disease and diabetes, and refuse to
put away the Fritos and beer, I would not believe I could live to age 85. Any
planner who tried to convince me otherwise and tried to make me save more has
just alienated me. Instead of saving more, I will buy expensive Blue Moon beer
instead of Pabst Blue Ribbon. Clearly, a standard life expectancy calculator is
inadequate.
So what life
expectancy should you use?
If you
live a totally healthy lifestyle – normal weight, non-smoker, eat a healthy
diet and exercise regularly, age 100 is a good choice. There is no need to get
fancy. You and your planner can go from there.
However,
if you have any health concerns, I recommend you discuss these with your
financial planner and have them incorporate a more refined life expectancy
calculator that takes into account lifestyle and family history. One calculator
I have used often is livingto100.com. This calculator asks in-depth questions
about lifestyle, family history, and various other factors that relate to
longevity. Putting in my “real” information, my life expectancy is age 102.
Changing my information to make me an overweight, beer guzzling, junk food
eater and smoker changed my life expectancy to age 63 – a significant
difference.
Livingto100.com
is funded by ads, and has the regular mumbo jumbo about privacy, but in
reality, it doesn’t know whether the information I provided is real or not. The
last thing it knows about me is that I live hard and will die young. I’ll let
you know if I receive ads for Fritos or smoking cessation therapy.
Talk to your
planner about your health
As
you can glean from this short example, financial planners should know your
health history. In addition to longevity planning, a health history is
important for health care expense planning, long term care discussions,
disability insurance, estate planning, and the very important event of
preparing you for the curve balls health problems may cause.
A
bona-fide financial planner has a fiduciary duty to you – which means they are
legally bound to work in your best interest. If your financial planner is a
true fiduciary, health care discussions should be expected and welcome in
creating your financial plan. As more clients expect health care discussions as
an overall component of their financial plan, more financial planners will
provide plans that more closely mirror real life and we will all be better for
it.
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