For Retirement Researchers
Retirement research must incorporate health care costs and longevity CORRECTLY into retirement planning. it is not enough to use average longevity; as health care costs vary greatly by individual differences in longevity and current health. One size does not fit all; health care costs vary widely depending on the individual characteristics of clients.
Safe withdrawal rates are greatly affected by health care costs and longevity.
See my article, published in the November, 2014 Journal of Financial Services Professionals
"Safe Withdrawal Rates Incorporating the Full Range of Health Care Costs"
(want to see a copy? - please contact me)
PDRP Plus can assist in your research for retirement planning in many ways. Here are a few examples:
Example one: Safe withdrawal rates:
A couple both aged 65 could have, depending on the amount of their assets,their current health and their life expectancy, a safe withdrawal rate (to achieve a 90-95% probability of not outliving their assets) of anywhere from a negative percentage to over 5%!
Note that the amount of assets does indeed have an impact on the safe withdrawal rate, a fact not often recognized, when healthcare costs are properly recognized!
Only PDRP Plus correctly incorporates the wide possible range of health care costs into safe withdrawal rate computations.
Example two: How do insurance and annuities impact retirement plans?
This critical question has a complicated answer.
For Long-term care insurance, (a very simplified answer is given here) the probability of not outliving assets is generally reduced slightly.
But there are other reasons to make the purchase, as can be seen by an examination of probability distributions with and without the insurance.
For immediate and deferred income annuities, the answer depends on the life expectancy of the annuitant and on current
immediate annuity prices, which depend on large measure on the interest rates that annuity issuers
use to compute the prices. What about these interest rates? Well, Jack P Paul Actuary, LLC can determine how well an annuity helps under both current interest rate and other interest rate scenarios. Suppose the annuity does not help retirees meet their goals due to the current low interest environment very well. How much do interest rates used by annuity issuers have to rise for the annuity to be effective? What is the impact if interest rates used drop? This information provided by Jack P Paul Actuary, LLC is important and not available elsewhere; it bears to the critical question of whether a purchase of an annuity should take place immediately or should be
Example three: Safety first retirement philosophies:
Safety first retirement philosophies call for retirees to prioritize their spending. The top priority is to provide for the essential needs
of the retiree, and to set aside enough money, or income from guaranteed sources, to provide for these essential needs; health care costs certainly fall into this category.
But these health care costs are very volatile - depending on the retiree could be huge or could be more modest; so the amount that needs to be set aside is uncertain, or, alternatively, setting aside a fixed amount will result in a less than 100% certainty
that the amount set aside for essential needs will be enough! So what is there to be done?
PDRP Plus can be used to determine the potential healthcare costs through probability distributions, and funding for essential needs can then be done with the range of costs in mind. PDRP Plus can determine how well the amounts you do set aside for healthcare costs actually cover them, and what are the chances of a shortfall.
Want to learn more about how to use PDRP Plus in your research?
Contact us! Fill out the form at the bottom of this page.