Sovereign Wealth Partners
- We need to look beyond the uncomfortable side of life expectancy and plan for how we best enjoy the “good years” of our old age.
- Actuarial tables only tell part of the story, realistic personal estimates tend to be very different from “Mr and Mrs Average”.
- Life expectancy calculators incorporating family, health and lifestyle can play a useful role in improving our wealth and lifestyle choices.
In helping you plan for the future, we need to border on the indiscrete and ask you about your health and life expectancy. This article sets the scene for those discussions and provides some guidance in approaching your own life expectancy.
How long we will live is, of course, a great unknown. Many clients don’t like thinking about it, but it has a profound impact on how we should plan and how much needs to be saved. Related to this, it’s not just how long we live, but how well.
First of all, how is your ‘official’ life expectancy calculated? The Australian Government Actuary’s life expectancy tables are based on census data collected over 2010-2012. Specifically, the demographics of those who passed away and those who didn’t. From this, official life expectancies can be estimated for “Mr and Mrs Average”. But if every generation has lived longer than the last, what rate of future health technology improvements should be assumed? This is where it gets difficult. One of several approaches used by the Government Actuary is to assume that the life expectancy improvement trend observed over the last 25 years continues into the future. To us, this seems sensible so the chart below is prepared from the Actuary’s data using that assumption. For example the “average” 65 year old woman today would be expected to live to age 89, if we assume the rate of improvement in life expectancy over the last 25 years continues.
Source: Australian Government Actuary Australian Life Tables.
Looking at this chart, one sees that women tend to live a couple of years longer than men, although that gap closes for those already in old age. When observing the differences between age cohorts, the initial kink in the slope of the curve recognises that health risks in infancy are significant. So a 10 year old has a slightly higher chance of reaching old age than a new-born. Although the range is fairly narrow, 65 year olds today have the lowest life expectancy. Poor them, they have the hazards of old age in front of them and only a limited amount of health technology breakthroughs to look forward to. On the other hand, when you think about the amazing healthcare breakthroughs of the last few years the underlying improvement trend may be conservative.
These statistics may be interesting and we would encourage you to check your own, but of course none of us is Mr or Mrs Average. We are each on our personal journey with a particular health and family history, lifestyle and gene profile. A personalised assessment of life expectancy has to take this into account. Incorporating longevity factors and taking care of our health will help increase the number of “good years” we have ahead of us, whatever our final score turns out to be.
A number of life expectancy calculators are available on the web. One we refer our clients to is mylongevity.com.au. This free service combines an actuarial approach with questions covering health, family and living environment. If you try it, you may be surprised at the outcome. For the author of this article, this calculator came up with an longevity estimate that differed by 8 years from the numbers in the table above.
In understanding our longevity and what impacts it, we can all take steps and enjoy the ‘good’ years more. Potentially we can add to them if we choose to improve our lifestyle and health choices.
Turning to our role in all of this, we consider it best practice to assume an ‘optimistic’ life expectancy. We need to ensure one doesn’t outlive their wealth and their estate plan targets can be met. If possible, we’d like to agree a realistic life expectancy with each one of our clients so we can provide them with the confidence to make the most of their ‘good’ years. And may there be many more of those!