Last update on November 6, 2013
Lifespan based planning allows you to model realistic income plans in which, after a spouse passes away, retirement income changes, one Social Security stream disappears and pensions and annuities switch to lower benefit.
Use the Income Parameters tab within the Income Strategies pane to shift to lifespan based planning. On changing the "Planning Horizon" field to "Lifespan", additional fields for each member's lifespan are shown, as illustrated in the following graphic:
Each member's lifespan is set in a percentile, which represents the percentage of the member's gender and age cohort that the retiree is expected to outlive. The lifespan in years is also shown for convenience. The actuarial data for the lifespan is currently based on 2009 Social Security Period Life Table.
By planning based on lifespans, the application is aware of the event of a spouse passing away and that event can be used to configure many aspects of the plan. For example, income level or Social Security claim method can be changed or cash flows can switch to a lower benefit for the survivor. Details for those steps are outlined below.
Income Phases: For a lifespan based planning horizon, the phases must be defined in terms of each family member's life. This is done by selecting "Phase Length" values of "Until Peter's Life" and "Until Lisa's Life", using the Brady Case Study as an example. You can still set phase length as a fixed number of years, but there must be at least one phase defined in terms of each family member's life. The screenshot below demonstrates a sample configuration of phases based on lifespan:
Social Security: Benefit starting age and ending age can also be defined in terms of the member's lifetimes. Edit the data in either column using the or double clicking the row and scroll down to see the lifespan based options. As shown in the exhibit below, Lisa claims her own Social Security benefit until Peter passes away, then she switches to a survivor benefit.
Incoming Cash Flows: The tool now supports the option for configuring to the member of whose life the cash flow is linked and if it is linked to joint life, then the survivor benefit is also setup. For joint life cash flows that have no reduction in benefit tied to death of a spouse, configure the survivor benefit as 100%. View the Incoming Cash Flows article for a more in depth discussion of this topic.
Income, Fixed and Variable Annuities: Similar to Incoming Cash Flows, annuities can also be linked to the life of any of the household member or their joint lives with a survivor benefit. For more information on how the new features impact annuity modeling, see the Using Income and Fixed Annuities and Using Variable Annuities articles.