Is planning for age 95 longevity overkill?

A new white paper from HealthView Services, a leading provider of retirement cost data and planning tools for the financial industry, is challenging the industry practice of planning for clients to live to age 95.

The report, titled "Retirement Planning, Longevity & Health: Does It Make Sense to Plan to 95?" suggests that most Americans are unlikely to reach this age, which should give many planners some pause when it comes to setting up their clients’ retirement savings strategies.

“The starting point for building longevity into retirement plans should be actuarial data based on health condition,” said HealthView Services CEO Ron Mastrogiovanni in a statement.

HealthView Services’ report includes health-based actuarial data that draws on 266 million cases to determine average life expectancies for healthy 65-year-old retirees versus those living with high cholesterol, cancer, diabetes, or other afflictions and unhealthy habits.

According to the report, 95 percent of Americans aged 60 or older have at least one chronic health condition that can reduce their actuarially projected life expectancy. For instance, the report notes that “for the almost 30 percent of the 65-plus population with diabetes, there is less than a one percent chance they will reach 95.”

Most Americans, even in good health, should not expect to live to age 95. The report reveals that for a typical 65-year-old man with no chronic conditions, there is only a 19.3 percent chance of living to 95. A 65-year-old with high blood pressure has slimmer odds, with a 17.5 percent chance of living for another 30 years.

The financial impact of overshooting longevity estimates isn’t insignificant, the report said. According to one startling calculation, a 65-year-old man who has met his income replacement ratio goal based on age 95, but is then projected to live only up to 86 because of his high cholesterol, may potentially be able to spend an additional $447,000 in retirement.

"Longevity risk should be discussed with clients," the report states, emphasizing the need for a balanced approach that considers both the possibility of living longer and the higher likelihood of dying before age 95. “Since clients have different risk appetites, levels of wealth, and sources of retirement income including Social Security, using health-based actuarial life expectancy for planning provides a way to dynamically balance the goals of living life to the fullest and managing longevity risk,” Mastrogiovanni said.