Planning for an Uncertain Life Expectancy

Did You Know? In 1950, the average American reaching age 65 could expect to live to age 78.9. In 2016, the average 65-year-old’s life expectancy jumped to age 84.4.*

Knowing how long you will live is impossible. This uncertainty makes planning your financial future a challenging endeavor. While professionals can estimate a reasonable life expectancy when creating your financial plan, relying on such an estimate poses certain risks. If you live past your life expectancy, will you be able to cover all your expenses? If you die prior to your life expectancy, will you leave your family with enough money to maintain their accustomed standard of living?

Living Past Your Life Expectancy Conventional wisdom dictates the longer you live, the more you will spend. Additional years of basic living expenses and discretionary spending will have a cumulative effect on your finances. Sound financial planning affords you an opportunity to contemplate the ramifications of surpassing your life expectancy.

In addition to basic living expenses and discretionary spending, many individuals are concerned about the potential financial impact of long-term care. These concerns are justified, as the U.S. Department of Health and Human Services estimates that someone turning age 65 today has almost a 70% chance of needing some type of long-term care in the future. A comprehensive financial plan will help you consider various strategies for covering the potential costs associated with long-term care. One such strategy is the purchase of a hybrid life/long-term care insurance policy.**   In many ways, a hybrid policy functions similarly to a traditional life insurance policy.  You pay premiums during life so your heirs will receive a lump-sum benefit upon your death.  What makes a hybrid policy unique is you are able to access a portion of the death benefit while you are alive to pay for qualifying long-term care expenses.***

Dying Prior to Your Life Expectancy   When an individual dies unexpectedly, his or her family may struggle to maintain their accustomed standard of living due to lost income. In addition to lost wage income, a decedent’s pension income may terminate or be materially reduced upon death. Furthermore, if both spouses are receiving Social Security benefits at the time of one spouse’s death, the surviving spouse will only receive the larger benefit moving forward. Some individuals turn to life insurance as a way to replace these lost income streams.   Plan now to assess what steps should be taken to ensure that your family is able to maintain their accustomed standard of living should you die prior to your life expectancy.

The risks associated with an uncertain life expectancy are unavoidable. Ongoing financial planning will allow you to address these risks as you continue to pursue your financial goals.

*Source: ttps://www.cdc.gov/nchs/data/hus/2017/015.pdf

**Riders that provide long-term care benefits may not cover all the costs associated with long-term care – costs that may be incurred during the period of coverage. You should review carefully all limitations in any policy you are considering and in the riders. Optional riders will incur additional cost.

*** Return of premium must occur prior to the commencement of claims, assumes no loans or withdrawals, and is subject to each particular insurance company’s restrictions. A portion of the amount returned to you may have tax implications, which you should discuss with your tax advisor. Costs, restrictions, and other conditions may apply, and not all features and riders are available in all states. Guarantees are based on the claims-paying ability of the issuing company

Article provided by Bryan A. Ruder, CFP?, MSPFP, AAMS?, AIF?, AWMA?, CRPC?, MPAS? , Associate Vice President/Investments, Stifel, Nicolaus & Company, Incorporated, Member SIPC and New York Stock Exchange, who can be contacted in the Evansville office at (812) 475-9353 or [email protected]