TITLE

Applications of Actuarial Math to Financial Planning

AUTHOR(S)
Goodman, Marina
PUB. DATE
September 2002
SOURCE
Journal of Financial Planning;Sep2002, Vol. 15 Issue 9, p96
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
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.
ACCESSION #
7390038

 

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