Timeline uses cohort life table based on the age and sex of the client to illustrate longevity risk.
A cohort life table uses a combination of observed mortality rates for past years and projections about mortality rates for the cohort in future years. It is important to understand that mortality projections are not forecasts. Information on how mortality rates have changed in the past is used to estimate the current rate of mortality improvement by age and sex, and to make assumptions about future mortality improvements.
Timeline illustrates longevity by showing the following two important metrics:
Survival probability: This is the chance that an individual (or at least one member of a couple) will survive until any given age.
Longevity-adjusted success rate: this metric calculates the probability that a client’s portfolio outlives them. It considers the client’s survival probability, rather than a fixed planning horizon. This is based on a framework set out in a 2008 paper published in the Journal of Financial Planning called Joint Life Expectancy and the Retirement Distribution Period by Dr. David Blanchett CFA, and Brian Blanchett CFA, CFP