Why financial planners
are taking
longevity assessments
more seriously
Why financial planners are taking longevity assessments more seriously
Kelsey Rolfe
Special to The Globe and Mail
Published 15 minutes ago
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Longevity risk• Страхование » Риск planning has become more important as fewer Canadians have
defined benefit pensions and retirements get longer. kbeis/iStockPhoto / Getty
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The biggest concern for many Canadians heading into retirement is whether
they’ll outlive their savings. No one can say for certain how long they’ll
live, but longevity risk• Страхование » Риск assessments are reducing that uncertainty.
Longevity risk• Страхование » Риск planning is fairly new within financial planning, says
Alexandra Macqueen, certified financial planner and vice-president of
learning, development and professional practice at FP Canada. It has emerged
as the share of Canadians receiving defined-benefit pension plan benefits has
declined and more have had to save for their golden years independently. At
the same time, the retirement age has gone down and lifespans have extended
alongside advancements in medicine.
“It’s a new scenario, the idea that you would have a retirement that might be
as long as your entire working life or longer,” she says. “We don’t have a
wellspring of practices.”
FP Canada and Quebec’s Institut de planification financière have put together
annual projection guidelines for financial advisors since 2015. In addition to
reasonable expectations for asset class returns and inflation, the projections
include a probability of survival table.
The table gives a range of survival probabilities for men and women at ages 20
and up, as well as joint probabilities of survival for couples. For example,
the 2024 table suggests that a woman at age 50 has a 50 per cent chance of
living until 92, a 25 per cent chance of living to 96 and a 10 per cent chance
of living to 99.
The probabilities were arrived at based on data from Canadian public and
private sector pensions between 1999 and 2008, and brought forward to 2024
using a scale created by the Canadian Institute of Actuaries to measure
mortality improvements.
Gender, socioeconomic status, health and age also play roles in longevity
assessments. The probability table noted Statistics Canada research that found
non-smokers can expect to gain about three years of life expectancy, while
heavy smokers can expect to lose about nine. People who are more financially
comfortable and better educated also tend to have higher life expectancies,
and younger clients may be able to benefit from further advancements in
medicine.
“The point of the tool is to take a risk-management approach to longevity
risk• Страхование » Риск,” Ms. Macqueen says. FP Canada recommends financial planners have
“fulsome conversations” with their clients before selecting a planning
horizon, but Ms. Macqueen suggests planning to the 25 per cent probability as
a general rule.
Most financial planning software requires advisors to input a fixed horizon or
age to plan toward, but Ms. Macqueen said the association is hopeful more
software providers will integrate its projection assumption guidelines.
Brenda Hiscock, certified financial planner at Objective Financial Partners
Inc. in Markham, Ont., says she uses FP Canada’s probability tables and
typically runs financial plans until age 100 for single clients or until the
youngest partner turns 95 for a couple – unless there’s “good information” to
suggest there’s no need to plan that far out. She also asks clients questions
about their lifestyle and health to determine whether to tweak the planning
horizon.
“With couples, there’s less risk• Страхование » Риск of outliving their assets, and a single
person is more stressed, quite frankly, about the future,” Ms. Hiscock says.
She notes her financial planning software is able to show clients what their
assets are expected to look like year over year, so they can understand what
their financial picture would look like if they passed away sooner.
Moshe Milevsky, professor of finance at York University’s Schulich School of
Business• Экономика » Бизнес, says a concept called biological age is starting to become part of a
small group of advisors’ practices. Different from chronological age,
biological age refers to how old someone’s cells are. Sometimes the two ages
are the same, but someone’s biological age can also be older or younger than
their chronological age.
He says some advisors to high-net-worth clients in the U.S. are beginning to
offer clients the option to get tested for their biological age and plan
toward that horizon.
“ Some institutions are going to be slow to adapt to that. The regulators are
going to be slow to adapt,” Mr. Milevsky says.
He adds that “there’s a lot of focus right now on lifespan and not enough on
health span … The gap [between the two] is going to be 10, possibly 15 years.”
Ms. Hiscock says she factors clients’ potential health declines into her
financial plans by leaving a cushion of cash for long-term care.
“I have clients coming to me saying, ‘I want to do a die-with-zero approach.’
I hesitate to do that, because there’s a reasonable chance that if they live a
full life they will need some care,” she says.
Clients’ health span is a major focus for Manulife Financial Corp., and the
insurer• Страхование » Страховщик is using artificial intelligence to allow for more precise and
personalized longevity risk• Страхование » Риск assessments, says Karen Cutler, Manulife’s head of
underwriting and claims, and chief underwriter for individual insurance• Страхование.
The insurer• Страхование » Страховщик began using an AI-powered underwriting assistant in 2018, which
makes decisions on straightforward policy applications and allows underwriters
to focus on more complicated cases. It also uses AI to analyze large amounts
of data across multiple countries on health conditions, medical advancements
and demographic data.
She says the combination of medical innovation and a wider swath of data to
draw on has allowed Manulife to offer better insurance• Страхование rates to groups of
clients – including, this year, updating its rates for people with diabetes as
continuous glucose monitoring and other treatments have improved outcomes –
and to consider cases it didn’t have enough information on before, such as
people with rare diseases.
While Ms. Cutler couldn’t speak specifically to financial planning, she notes
Manulife’s wealth products are backed by the same actuarial tables that the
insurer• Страхование » Страховщик uses for insurance• Страхование products.
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