Planning ahead for a longer life

One of the advantages of being a consultant is that you can occasionally work from home. The glorious weather we have been having has been both welcome and frustrating as I cannot work effectively out of doors.

It was during one of my brief tea breaks in the garden that I heard the news about the two Territorial Army soldiers who had died on the Brecon Beacons. In total nine soldiers had to be airlifted off the mountains due to heat exhaustion. All had been taking part in the gruelling SAS selection process. My thoughts are with their families.

It is likely that no one could have predicted the death of those particular young reservists. Indeed in these high temperatures many a civilian will also be taken unawares by the heat and although we do not know who the individuals affected will be, we do know that there will be some. The same can be said of winter and the severe cold that we can expect. While we cannot individually identify who will succumb, we do know that the old and infirm are more vulnerable and it is this knowledge, among other information, statistics and experience, that allows actuaries to calculate life expectancy and set life insurance and annuity rates.

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In recent years we have become accustomed to expect ever-increasing life expectancy. Medical science keeps finding new cures and treatments which can prolong life and this trend is ever upward, although the occasional blip should be expected. While the cause is more to do with a difference in the predicted death rate and the actual census returns, it opens up the question about how many more of these blips are likely to occur in the future and what impact this will have on mortality rates.

Whatever the eventual maximum life expectancy, the fact remains that UK citizens are living longer and instead of looking forward to a retirement that lasts for only a few years, many of your clients will be expecting to live in retirement for 10, 20, 30 or more years.

With careful financial planning these can and should be periods of relaxation and enjoyment but increased life expectancy does not automatically mean an increased quality of life. Take my own parents as an example.

My father is now recovering in hospital after surgery for a new knee. He is in his 80s and is still active despite two bouts of cancer, heart disease and a triple heart bypass. In fact he is a walking (well, hobbling) example of how good our health service is.

In comparison, my 92-year-old mother is now residing in a residential home due to advanced Alzheimer’s. She needs constant care and is barely mobile and unable to communicate coherently. What quality of life is this?

My parents are a good example of the growth area of financial planning. People who worked hard all of their working lives, saved and invested and are now retired with ample means to afford a comfortable retirement. Yet this group are also susceptible to well-meant but misguided advice – including advice from our own profession. For example while I am a strong supporter of cash-flow modelling as a tool to help the financial planning process, I get very concerned (and irritated) when planners (or more accurately their software) ‘assumes’ that the client will die by the age of 99. While this may be arithmetically advantageous for the planner, clients can and do live longer and they will run out of money unless regular re-forecasting is done.