In our December 31, 2025 post, we referred to a three-step process that we encouraged you to use to replace the default LPP assumptions in the Actuarial Financial Planner to refine and personalize your Funded Status measurements.
Last week, Advisor Perspectives published my article entitled, “Use This 3-Step Process to Develop Better End-of-Life Assumptions for Your Clients.” We include the three steps in this post from that article. A link to this article is also available in the “articles” section of our website.
Three-Step Process for Determining Reasonable LPP Assumptions
Step 1
Estimate client life expectancy (single or for each member of the couple) using the 50% probabilities of survival from the planning horizon of the ALI. Also estimate life expectancies from three or four other reliable life expectancy calculator tools available on the website that generally consider more factors than the ALI. Such tools include:
- Life Span Calculator (Northwestern Mutual)
- John Hancock Life Expectancy Calculator
- Blueprint Income
- Living to 100 Life Expectancy Calculator
- Big Life
- The Healthy Life Expectancy Calculator
One of the related benefits to your clients associated with this step may be to encourage them to engage in healthier lifestyles to increase their life expectancies.
Step 2
Compare the 50% probabilities of survival life expectancies from the planning horizon of the ALI with the average life expectancy results obtained from the internet calculators. Determine appropriate adjustments in your client’s current age for significant differences. This may look like adding years to the client’s current age if internet life expectancy results are generally shorter than ALI results, or by subtracting years from the client’s current age if internet results are generally longer.
For example, if the ALI indicates a life expectancy for a 65-year-old male in excellent health is 23 years but the average of internet calculators supports a 25-year life expectancy, then subtract 2 years from the male’s current age. Do the same thing for a spouse. I call these age adjustments “age setbacks” or “age set forwards.”
Step 3
Go back to the ALI and enter adjusted ages from Step 2 without changing the health status or gender. Update the results and take the adjusted results from the 25% probability of survival from the planning horizon section. This will give you one longer-than-life-expectancy LPP for a single client or four LPPs: “Person 1,” “Person 2,” “At least one Alive,” and “Both Alive” for a married couple.
The article includes examples of how this process works for two couples with the same ages but different health statuses and habits.
It is important to remember to follow the warning highlighted in red at the bottom of the AFP spreadsheet when overriding the default assumptions.
