by Russell Hutchinson
To have some idea about what’s going on and to be ready for that - this concept unifies goal-based financial planners and life insurance advisers. A map, of course, is not the territory. Those carefully marked bushes – is that a pleasantly walkable forest providing needed shade on the journey? Or an impenetrable patch of gorse?
If there is a new map to life, then there must have been an old one. Perhaps it was the idea of growing up, getting a degree, marrying, having a nuclear family of your own, working in a career and retiring at 65. If it was ever accurate for a majority of the population it surely isn’t anymore. Household structures vary a lot. The employment market means we may each have several different ‘careers’. Retirement at 65 looks silly in the light of good health and life stretching out much further than when that market was made.
Focusing on working life, how it is lengthening and changing, is a valuable idea. A single career followed by retirement may still be your goal that requires planning. On the other hand, with a longer life you may need to plan for a career break, retraining, a change of pace, a change of family or even a change of country. Understanding the need for greater flexibility when you are planning for longer periods is a valuable input to selecting strategies. This is what is meant by a new map of life. If it is, then to ensure a reasonable basis for advice discussion, it would be good to have some indication of the frequency of career-interrupting changes. We have good data for disablement and child-rearing too – but it would be good to have information on other major life changes.
Another concept which is being disrupted by a new ‘map of life’ is talking about expected date of death. This is a vital input into many retirement planning processes where some discussion of consuming capital is to be had. Poor versions of this use life expectancy at birth. Better iterations use age-adjusted life expectancy. The best revise this estimate based on the client’s health – and include indications, akin to Monte-Carlo predictions: 25% will be dead by age x, 50% by age y, 75% by age z.
These are calculations that are probably beyond an individual planner – or even a reasonably capable financial advice provider business – but they can be obtained from several good sources for other markets, and it would be nice to have them available here.
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