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Your health, lifespan and retirement plan: One size won’t fit all

by Alliance America
January 27, 2025

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A groundbreaking study by HealthView Services (HVS) is challenging one of the most fundamental assumptions in retirement planning: the practice of planning to age 95. This comprehensive research, drawing on 266 million cases and extensive actuarial data, suggests that health conditions should play a far more significant role in retirement planning than previously considered in traditional financial planning models.

For decades, financial advisors have used age 95 as a default retirement planning benchmark, leading millions of Americans to potentially over-save or under-save for retirement. This new research suggests that personalized health factors should be the cornerstone of retirement planning, potentially transforming how Americans approach their retirement strategies.

"I almost always assume clients live until age 95 when I do my financial plans," Carla Adams, a certified financial planner in Michigan, according to msn.com.

Is life expectancy increasing?

Miniature figures walking on a bar graph symbolizing health-based retirement planning, lifespan, and financial progress in retirement.

Life expectancy in the United States has seen significant changes over the past century. While there have been some fluctuations in recent years due to factors like the COVID-19 pandemic, the overall trend shows that Americans are living longer on average. According to the data from the Social Security Administration, a 65-year-old man can expect to live, on average, until age 84, while a 65-year-old woman can expect to live until 86.9.

However, these averages don't tell the whole story. Approximately one in four 65-year-olds will live past 90, and one in 10 will live past 95. This variability in life expectancy presents a challenge for retirement planning. While planning to age 95 has been a common benchmark, it may be overly conservative for some retirees, potentially leading to unnecessary restrictions on spending and quality of life in the early retirement years.

On the other hand, underestimating your lifespan could result in outliving your savings, a scenario that no retiree wants to face. The key is to find a balance that accounts for your individual circumstances, family history, and personal health factors.

What is the probability of living to age 95?

According to the HVS study, even among the healthiest retirees, the probability of reaching age 95 may be surprisingly low. A 65-year-old male with no chronic health conditions has only a 19.3% chance of living to 95. For those with common health conditions, the probabilities decrease significantly:

  • Individuals with high blood pressure: 17.5%.
  • Those with cardiovascular disease: 15.8%.
  • People with high cholesterol: 12.5%
  • Those diagnosed with diabetes: Less than 1%.

Research reveals that 95% of Americans age 60 or older have at least one chronic health condition that affects their life expectancy, a finding with profound implications for retirement planning. According to the study, health conditions lead to significantly different life expectancies between men and women. For instance, a 65-year-old woman with no chronic conditions can expect to live to 90, while her male counterpart's life expectancy is 88 years. However, the impact of health conditions becomes apparent when examining specific diagnoses.

For a 65-year-old woman:

  • High blood pressure, 89 years.
  • Cardiovascular disease, 88 years.
  • Diabetes, 82 years.
  • Cancer, 82 years.

For a 65-year-old man:

  • High blood pressure, 86 years.
  • Cardiovascular disease, 85 years.
  • Diabetes, 79 years.
  • Cancer, 82 years.

How do health conditions impact retirement planning?

 Senior couple reviewing charts and data for personalized retirement planning and asset allocation to ensure financial security and longevity.

By incorporating regular health assessments and plan adjustments, retirees can better align their financial strategies with their actual life expectancy and health-related expenses – not a traditional one-size-fits-all model. This approach not only provides a more accurate picture of potential retirement needs but also allows for greater flexibility in managing resources throughout retirement. Key recommendations from the research include:

  • Conducting annual reviews of your financial plan that include health status updates. Reviews are crucial because new diagnoses or changes in existing conditions can significantly impact life expectancy projections and corresponding financial needs.
  • Adjusting financial strategies as health conditions develop or change. For example, a new diagnosis might allow for higher withdrawal rates or reallocation of assets to better serve current needs.
  • Building in contingency plans for surviving spouses and desired legacies. This strategy can ensure that even if health-based projections suggest a shorter lifespan, loved ones remain protected and inheritance goals are met regardless of actual longevity.

What income cannot be outlived?

Clipboard displaying 'Qualified Longevity Annuity Contract' (QLAC), highlighting strategies for guaranteed lifetime income and retirement planning.

For retirees concerned about outliving their savings, several financial products can provide guaranteed income streams that last for life. According to the research by HVS, understanding these options becomes especially important when considering how health conditions impact life expectancy and retirement planning needs.

Qualified longevity annuity contracts (QLACs) represent an innovative solution for guaranteed lifetime income. These specialized deferred annuities allow individuals to use up to $200,000 from their qualified retirement accounts like traditional IRAs or 401(k)s to purchase guaranteed future income that begins at a later age, typically 80 or 85. The key advantage of QLACs is their ability to provide higher guaranteed payments due to the delayed start date, while simultaneously reducing required minimum distributions (RMDs) from retirement accounts before the income begins.

For example, a 65-year-old retiree might invest $100,000 in a QLAC that begins payments at age 85. This allows them to spend their other retirement assets more freely in their earlier retirement years, particularly if health conditions suggest a shorter life expectancy, while maintaining the security of guaranteed income if they live into their mid-80s and beyond.

Beyond QLACs, other guaranteed income solutions include:

  • Traditional immediate annuities. These convert a lump sum into guaranteed lifetime income starting right away. They're particularly valuable for retirees who need predictable income to cover essential expenses.
  • Fixed index annuities with income riders. These products offer potential market-linked growth while guaranteeing minimum income levels through optional income riders.
  • Multi-year guaranteed annuities (MYGAs). Similar to CDs, these provide guaranteed interest rates for specific periods and can be converted to lifetime income streams.

The HVS study suggests a strategic approach to combining income sources to create a comprehensive retirement plan. A retiree might begin by establishing Social Security as their foundation of guaranteed lifetime income, then layer on a QLAC to provide additional guaranteed income starting at age 85. This framework can be supplemented with traditional investments for growth and flexible spending in early retirement years. If additional guaranteed income is needed, portions of savings can be strategically converted to immediate annuities. The optimal mix of these income sources varies significantly based on individual circumstances.

Current health status and projected longevity play a crucial role in determining the allocation, as do desired lifestyle and anticipated spending needs. Other important considerations include existing sources of retirement income, legacy goals for future generations and personal risk tolerance. It’s also important to weigh inflation concerns and tax implications when developing a retirement income strategy.

A personalized approach allows retirees to balance their need for guaranteed income with flexibility, while accounting for their unique health situation and financial objectives. For those with chronic health conditions, the research suggests possibly allocating a smaller portion of assets to lifetime income products, allowing for higher discretionary spending in earlier retirement years. However, even with health conditions, maintaining some level of guaranteed lifetime income provides important protection against longevity risk.

Conclusion

The HVS study marks a potential paradigm shift in retirement planning, challenging the traditional one-size-fits-all approach of planning to age 95. By demonstrating that health conditions significantly impact life expectancy and retirement needs, the research suggests a more nuanced, personalized approach to retirement planning is not only possible but necessary.

This health-based approach to retirement planning offers several advantages. It can help retirees avoid over-saving at the expense of their quality of life in early retirement years, while still maintaining adequate protection against longevity risk through strategic use of guaranteed income products. For financial professionals and their clients, regular health assessments and corresponding plan adjustments can lead to more efficient use of retirement assets and better alignment with actual needs and life expectancy.

However, the study's findings don't suggest abandoning conservative planning altogether. Instead, they point toward a more balanced approach that considers both individual health factors and the need for financial security. By combining traditional retirement planning tools with health-based adjustments and guaranteed income products, retirees can create more personalized and potentially more effective retirement strategies.

Alliance America can help

Alliance America is an insurance and financial services company dedicated to the art of personal financial planning. Our financial professionals can assist you in maximizing your retirement resources and achieving your future goals. We have access to an array of products and services, all focused on helping you enjoy the retirement lifestyle you want and deserve. You can request a no-cost, no-obligation consultation by calling (833) 219-6884 today.

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