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We’re getting older – now what?


The fountain of youth – long sought after for centuries. Its draw is legendary, enticing men like Ponce deLeon to embark on voyages to unknown regions in search of it. Seemingly, it has been found not via armadas on the open seas or by cutting through jungles, but by men and women working in lab coats and researching the innermost workings of our earthly vessels.
The proof is in the numbers. The actuarial community publishes tables to predict how many people of a given age will die in a given year. Dubbed Commissioner Standard Ordinary tables (CSO), they are accepted as gospel among this somber group of professionals and are updated when the community agrees that the change in longevity is significant. Over the past 70 years, life expectancy rates have been rising and next year will see another jump. Below is a summary of life expectancy over the last 70 years:

CSO Table Male Life Expectancy Female Life Expectancy

   1941    62.3    62.3

   1958    68.3    71.2

   1980    70.8    75.8

   2001    76.6    80.8

   2017    79.7    82.9


A few observations:

In general, people are on average living 30 percent longer than they did at the start of World War II.

Men are closing the gap. Over the past 20 years, men have extended their longevity by 12.5 percent, whereas the average woman lives just over 9 percent longer.

A normal retirement age of 65 – or 67, depending on when you were born – may be unsustainable for the population at large. A 65-year-old retiree in 2017 will need to have three times the assets their father did when retiring in 1980. On average, Greatest Generation dad lives for five years after retirement at 65, while Baby Boomer son lives for 15 years until 80).

The slope of the longevity curve is trending sharply upward.

These life expectancy tables represent a statistical average – half the female population will live to age 83, for example.

So what does this all mean in the world of benefits? In a word, everything. Two key product innnovations have resulted from this trend – long term care insurance and longevity guarantees.


Long term care insurance

First offered in the late 1970s, long term care or LTC pertains typically to medical support coverages that are generally not available or only available on a limited basis under private medical insurance or Medicare. Benefits provided include home health care, private-duty nursing in or out of a care facility, live-in caregiver, and housekeeping assistance.

Claims are based upon the inability to independently perform as little as two of the basic activities of daily living such as dressing, bathing, feeding yourself, toileting, continence, transferring in and out of a bed or chair, and walking. Roughly 70 percent of individuals over 65 will require at least some type of long-term care services during their lifetime. About 60 percent of those over 75 will spend some period of time in a nursing home.

Since 2010, many carriers have either severely limited policy benefits, dramatically increased premiums or even pulled out of the long term care market. Factors have included both the increased costs of private nursing facilities – in excess of $450 a day in the New York area – and the aforementioned issue of longevity.

Policies once provided lifetime coverage but now are typically capped at six years of benefit payment.   The current approach is to attach an LTC rider onto a life insurance policy. Often expressed as a percentage of the death benefit – these riders provide a pool of cash available to pay the cost of care. They also follow a similar claims process based upon the inability to perform basic daily living activities. Be advised that they rarely can be added to existing policies, so age and insurability become factors to consider.

Longevity guarantees

After attending to one’s health care needs, the second financial concern resulting from longer life expectancy is not outliving your assets. Several seismic shifts have made this an even greater concern than it ever was for our parents. Among them is the virtual end of defined benefit pensions, enhanced volatility within the financial markets, growing investor confusion and uncertainty resulting from information delivered through the fire hose known as the internet. Sprinkle in persistent low interest rates and one’s financial concern ratchets higher.

A variety of unique investment products have risen to meet these needs and hopefully allay those fears.   One of the more creative is a type of rider that is added to an annuity. (An annuity essentially represents a guaranteed stream of payments that will be paid from a pool of money for a specified period of time). Guaranteed minimum benefit (GMB) riders are commonly attached to many annuities sold today.

GMB riders provide an investor with a minimum level of annuity payment while the annuity is in the accumulation phase and a base amount of lifetime income in the distribution phase, regardless of how the investment has performed. These guarantees are paid for by the assessment of a fee – .75 to 1.25 percent – against the performance of the underlying investment itself. In order to receive the guarantee, the investor must annuitize their payment – that is, take over the remainder of their life. This may not be true of all products and may void the riders. Note that annuity payments, death benefits and optional benefits are guaranteed solely by the issuing insurance company.

Unlike traditional “period certain” annuities, these more modern contracts offer refund of premium or enhanced death benefits should one buck the longevity trend and pass away on the wrong end of the actuarial curve. As a result, they often become an important financial planning tool. Much like the traditional defined benefit pension, one is provided a base amount of lifetime income upon which the remainder of retirement assets can be invested.

One wonders how the trend of extended life expectancy will continue to play out. Will the arc continue trending upward and if so, what product innovations remain to be seen?

Anthony Domino Jr. is managing principal of Associated Benefit Consultants LLC, an employee benefit and personal planning firm in Rye Brook. He can be reached at adomino@associatedbenefit.com or 914-288-8882. 

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  1. Jonathan Pond, Financial Planner, says that 90% of estates are spent this way:
    1) nursing home
    2) IRS
    3) children
    4) grandchildren
    5) charity

    The Federal Deficit Reduction Act provided for every state to have a Partnership program to provide asset protection for those who buy qualified long term care insurance policies. http://www.partnershipforlongtermcare.com/

    An alternative are linked products, Life Insurance or Annuities with long term care riders. In most states you can also use your qualified money (IRA/401k) to fund your plan. http://lifeinsuranceltc.com


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