Advances in medicine will contribute to a greater stratification of life spans. Retirees with a life expectancy of an additional 30 years can tolerate more risk in their investment strategies and need to achieve higher returns since they are at greater risk of outliving their savings. Knowing a client's life expectancy allows financial advisors to develop a more precisely tailored investment and retirement plan. During the last decade, there has been a substantial increase in the depth and breadth of investment products.
How much of a client's assets should be allocated to generating guaranteed income versus how much should be allocated to long-term investments such as stocks and bonds is the first part of a three-fold assessment.
The process begins with a review of a client's assets, including life insurance policies. For example, a life insurance policy review can demonstrate the best options for a client. In some cases, they can be sold to more efficiently allocate a client's assets towards guaranteed cash flow products while eliminating premium expenses. The combination of selling a negative cash flow asset while using the proceeds to generate positive cash flow creates a swing factor in funds flow that can dramatically change a client's ability to manage their future financial needs. The process ultimately leads to a rebalancing of a client's balance sheet.
Knowing a client's life expectancy can assist a financial advisor in redeploying the client's investment portfolio. For example, it would be useful in determining if an annuity makes sense, since insurance companies calculate the annual amount to pay to each person in an age group based on the predictable mortality experience of a large number of people in that age group. Consequently, annuity contracts are more attractive for people whose present health, living habits and family mortality experience suggest that they are destined to live longer than average.
