1. Financial & Health Wellness
An Actuary’s View
Thomas L. Totten, FSA, PhD
April 13, 2018

2. Background
An Actuary’s Story
Behavioral Biases
Healthcare and the decision to retire
Current Actuarial Survey Info
Conclusion

3. Background
Recruit
Retain
Retire

4. Background Financial Wellness is not new
All benefits improve financial wellness
Retirement
Health care
Disability
Life Insurance
Some sort of integration of all benefits plus other features of wellness on one platform

5. Background Retirement readiness is somewhat misleading when:
People have different goals
People have different health statuses
If your lifespan is projected to be short, then you spend fast
People have different expense structures
People are sometimes supporting different generations
Financial wellness must be more personalized

6. An Actuary’s Story

7. Behavioral Biases Behavioral finance must be understood
People make irrational decisions
Financial wellness involves understanding

8. Behavioral Biases Which option would you choose?
You have a guaranteed $800 win
You have a 20% chance to win $1,000 and 80% chance to win $0

9. Behavioral Biases Which option would you choose?
You have a guaranteed $800 loss
You have a 20% chance to lose $0 and 80% chance to lose $1,000

10. Behavioral Biases
Prospect theory by Kahneman and Tversky showed that people value losses and gains differently
Nobel prize
They also showed that people overestimate low probability events and underestimate high probability events
Thus lottery tickets are born

11. Behavioral Biases What is your choice?
Lump sum or annuity at retirement if you have a pension:
You can take $50,000 a year when you retire at age 65 for the rest of your life.
You can take $600,000 in one lump sum.
What is your choice?

12. Behavioral Biases Nyhart data shows that 80% of people take lump sums
Probably because of the view that it is a loss if they purchase the annuity and get hit by a bus the next day

13. Behavioral Biases
Oddly enough, the reality shows that people who annuitize in retirement are happier
Irrational decision then by pre-retirees?
WILLIS TOWERS WATSON - SEPTEMBER 2012
Annuities and Retirement Happiness

14. Behavioral Biases
Would you change your choice of annuities if you knew the probabilities?
Do you overstate your probability of death when you don’t choose an annuity?

15. Behavioral biases THE ENDOWMENT EFFECT
Pre-retirees view their pots of retirement money differently than retirees
Suddenly, spending becomes even more of a problem with no new dollars coming in as a retiree
Story of attorney
JOURNAL OF POLITICAL ECONOMY
Experimental tests of the endowment effect
and the Coase theorem

16. Behavioral Biases

17. Behavioral Biases

18. Healthcare and the decision to retire

19. Healthcare and the decision to retire

20. Healthcare and the decision to retire

21. Healthcare and the decision to retire
How do you address healthcare for people planning to retire?
Decisions on ACA, COBRA, Medicare, etc……
It is a huge part of financial wellness

22. Current survey info Society of Actuaries 2017

23. Current survey info Society of Actuaries 2017

24. Current survey info Society of Actuaries 2017

25. Current survey info Society of Actuaries 2017

26. Conclusion Benefits are a huge portion of financial wellness
Even retirement experts struggle with retirement wellness
Consolidating all information together is probably a good idea
Understanding behavioral biases could help people in their financial decision making
Health care becomes a big portion of wellness at the latter stage of a person’s career
People are less confident in their ability to handle this postretirement