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The art and science of financial planning – with specific reference to longevity

Longevity and you.

Early in the financial planning process there are two vexing questions which a planner needs to attempt to establish – the first being the client’s risk profile (this is a subject for another day) and the second is longevity. The word longevity is sometimes used as a synonym for ‘life expectancy’ in demography – life expectancy is always defined statistically as the average number of years remaining at a given age.

The financial planner uses this as a ‘magic’ number to determine the amount of income which can be drawn in retirement to attempt to avoid the client being in a position in which their lives outlive their capital.

Generally in attempting to determine this magic number the advisor will enquire about the health of their client, their family history in other words the age of their parents and their grandparents, with the same questions directed at their spouse.

Even going through these various question there can still be no doubt about it, we are all living longer. Like most things in life, increased longevity brings with it opportunities and challenges.

With many of my client’s we plan for longevity even till age 100 and this is done not just to be conservative but to reflect on reality as shown in the table below:


Impact on longevity

Life expectancy at birth #

(average in years)




Advances in understanding the causes of disease.

Improvements in urban sanitation.

Massive reduction in infant mortality.



Widespread use of antibiotics and a focus on

non-communicable diseases (such as cancers,

heart disease and strokes)



Continuing medical advances



Focus on brain?

               100 +?

#These are statistics taken from developed economies and therefore can’t be directly applied to the broad South African demographics.

What relevance does this have to you?

Thinking about these issues at a community level is interesting and challenging, particularly from a policy perspective. Clearly aged care options (both in and out of the home) will be in demand in the coming years and this is an issue that concerns all in one way or another – as tax payers, as potential users of aged care facilities or as the carer or relative of someone in need of aged care assistance. The South African policy makers, similar to those around the world, are looking for ways to encourage their citizens to save, prepare for their retirement so as they will not be reliant the government’s pension grants – this grant in South African is currently R1 410 per month. This savings encouragement in South Africa comes in the form of highly attractive retirement savings plan, be it pension or retirement annuity funds and the recently introduced tax free savings plans.

I have recently come across a very thought provoking table taken from Australian life tables. The expected death rates in five-year intervals for a person aged 65 – for example, only about 5% of 65-year-olds are expected to die before they reach the age of 69, while over 10% are expected to die between the ages of 95 and 99 and about 5% over 100.


Source: Australian Life Tables

Just over 20% of 65-year olds are expected to die in the five-year group containing the current average, which means nearly 80% won’t. So for the majority, the life tables are not particularly helpful.

You may well be looking at this table and saying these are all just statistics – damned statistics – but how can I get a better understanding of my own longevity? To answer this I direct to an Australian website – which has a free life expectancy calculator. This tool have identified a series of factors which include: your surroundings, your current health, your attitudes, your parents (and their health and longevity) and your diet and eating habits.

What’s the point?

While no person can know the date or the time of their calling it is useful to have a sober view of the probability of living longer. This could influence when you decide to retire, what you intend to do with your latter years particularly while your brain is active and you have much to contribute to your community. Leaving these decisions till the actual time of your retirement is foolhardy and could be fraught with disappointment.


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