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.