Applications of Actuarial Math to Financial Planning

Goodman, Marina
September 2002
Journal of Financial Planning;Sep2002, Vol. 15 Issue 9, p96
Academic Journal
This article focuses on the application of the basic principles of actuarial math to the financial planning of retirees. as retirement becomes an increasingly longer period of life, financial planners face the challenge of managing a portfolio with an ever-lengthening possible time horizon. As a result, two issues are becoming more problematic for planners: calculating the client's life expectancy, and computing the value of an income stream whose payments depend on the client being alive. While these are new challenges for financial planners, actuaries have been addressing these problems for over a century. Knowing the client's life expectancy is crucial when trying to determine an investment time horizon for retirees. Using a client's life expectancy plus a few years as a portfolio's time horizon is one possible technique. It is important to understand the limitations of using probability theory in personal financial planning. Insurance companies can successfully use these probabilities because they have thousands of policyholders and thus can rely on the law of averages.


Related Articles

  • The Risk Of Not Risk Pooling. Gallo, Mike // National Underwriter / Life & Health Financial Services;12/15/2008, Vol. 112 Issue 42, p36 

    The article discusses the advantages of participating in a risk pool for benefit plans. Retirees participating in a risk poll enables them to take income as if they are going to live life expectancy and receive a guarantee that they will never run out of money. Without the inclusion of a...

  • Your Golden Years. Tyson, Eric; Carlson, Bob // Personal Excellence Essentials;Jul2010, Vol. 15 Issue 7, p11 

    The article discusses the common mistakes that retirees make in their financial and retirement planning and suggests ways to correct them. These are failure to plan, thinking that estate planning is not a personal decision, underestimation of life expectancy, miscalculating inflation, believing...

  • When People Who Have Stopped Working Should Take Social Security Retirement. Kinderman, Albert; Jennings, William P. // Journal of Financial Counseling & Planning;2006, Vol. 17 Issue 1, p4 

    A new generation of retirees will receive full Social Security retirement benefits at age 66. Those who have left the workforce have the choice of collecting benefits early. The paper considers the range of choices faced by decision-makers and offers an alternative approach to the financial...

  • financial FOCUS. Jones, Daniel C. // PN;May2011, Vol. 65 Issue 5, p28 

    The article offers the author's insight on how to handle withdrawal rates of a retirement plan. The author states that withdrawal rate is the annual percentage being extracted from a retirement portfolio. He mentions several factors to be considered before calculating withdrawal rates including...

  • Nearing retirement? Give yourself a financial check-up. Fay, W. David // Inside Tucson Business;11/9/2009, Vol. 19 Issue 23, p17 

    The article offers advices on how retirees plan financially for a retirement. It states that it is important to examine the finances and inventory of retirements funds five to seven years before retiring so to give time to make adjustments to help meet the goals when retirement comes. It...

  • Mass exodus.  // Accountancy;Aug2003, Vol. 132 Issue 1320, p113 

    The article reports on the results of a survey which indicated that the number of British citizens who are considering leaving Great Britain to retire in locations with warmer climates is increasing. However, Charles Parkinson, author of the book "Taxation in France," warns these people that...

  • Taking on Retirement. Veres, Bob // Financial Planning;May2007, Vol. 37 Issue 5, p45 

    The article discusses how to serve clients in their retirement years. Financial planning for retirees has no fixed formulas. Advisors must evaluate every aspect of a retiree's situation and formulate a financial plan that is appropriate. Financial moves such as liquidating accounts and investing...

  • Retirement Income Planning Needs A New Direction. Greenwald, Mathew // National Underwriter / Life & Health Financial Services;10/22/2007, Vol. 111 Issue 39, p12 

    The article focuses on the revision of retirement income management in the U.S. According to the survey, many of the retirees have experienced the risk of investment loss. The author asserts that the paradigm of financial planning for retirees must be changed by providing them a good enhancement...

  • Pensioners face harder struggle without advice. Blackmore, Nicole // Money Marketing;6/12/2008, p26 

    The article presents the study of MGM Advantage regarding the financial difficulties faced by retirees who failed to seek independent financial advice (IFA) in Great Britain. The Retirement Nation Survey indicates that only 14 per cent of the 3,000 people surveyed admits that they sought IFA...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics