Courtesy of Jonathan Blattmachr and Marty Shenkman for the Heckerling Institute, last month we provide the following:
‘Over the past three decades, life expectancy of male workers retiring at age 65 has risen six years in the top half of the income spectrum, but only 1.3 years in the bottom half. The age for peak financial decision making is age 50. Financial decision making ability begins to decline by age 60 and is significantly impacted by age 80. Even more worrisome is that the same studies indicated that people’s perceptions of their abilities do not decline. At what age are most estate plans crafted? Likely much older.
Creating and implementing a plan at an earlier age to protect clients is important to properly protect them from the growing gap between their perception of their financial making ability and their actual ability.
Half of all people age 65 and older live alone. A male, born in 1940, in the wealthiest decile, is expected to live ten years longer than a male in the bottom wealth decile. Overall, life expectancy has increased significantly since Social Security began making their first payments in 1940. At that time, a male who turned 65 had a life expectancy of 12.7 years, compared to 18.6 years in 2010. The figures for a woman were 14.7 years and 20.7 years. In 1983, Congress made a change that very slowly and gradually moved the age people could receive full Social Security benefits – from age 65 to age 67 – and that change will be full and complete in 2027. The cost of “retirement benefits” to the retired class has now emerged as the most weighted key component of the nation’s long-term budget deficit and debt. Hence the current increasing talk, interest and pressure to again raise the so called retirement age — specifically, the age of eligibility for both Medicare and Social Security. There is an increasing and widening life expectancy difference for people on opposite ends of the income and wealth scale. Wealthier people, people with higher income, more disposable and discretionary income, people with “more access” to valuable information and resources, etc., simply put, have a better chance of living longer. They go to doctors more often, more easily, and they can afford it. They tend to have better access to medical care, and the money to pay for care that may or may not be addressed by any coverage they may have.
Consider the implications to raising the age for collecting Social Security in light of this data. The wealthy clients who have the least need for payments may in fact collect more than the poorest with the most need. For moderate wealth clients the likelihood of Social Security and other benefits being curtailed or means tested should be factored into planning forecasts.
The American Actuarial Society did a study in 2012 that indicated that people who purchase a $1M life insurance policy are more likely to live longer than the normal population. These larger policy owners had ratios of actual to expected life expectancy in the 82- 85% range. This is likely because those who can afford and do buy such a policy have more financial resources and education to afford to obtain, and know to obtain, better health care. Perhaps the wealthier the client the larger the policy and the better the mortality experience. ‘
The Will Doctor will continue incorporating this data into how we practice estate planning for our clients. It will cause meaningful alteration and supplementation of our recommendations.