The #1 concern of many clients who are at or nearing retirement:

“Will I have enough money to last the rest of my life, or will I

outlive my assets?”

To answer this question, financial planners use projections:

Sometimes based on one set of future asset earnings Known as single path or “deterministic”

Sometimes based on multiple sets of future asset earnings Known as stochastic, or “Monte Carlo” testing

Generally considered superior to single path Outcomes expressed as probabilities, not one answer

But… Both projection methods ignore or miscompute some

very basic realities of retirement life. Namely… Long-term Care Prescription Drugs Longevity

The issue: When calculating the financial risks of retirement life, Financial Planners and their clients are working with inaccurate probabilities.

Key issues with today’s projections (an actuarial perspective):

Long-term care costs Either not accounted for, or treated as a fixed event (e.g., a two

year stay in a nursing home starting at age 80). But long-term care costs can range between zero and over a million

dollars Prescription drug costs

Generally not considered, or based on current drug use, with an inflation adjustment.

But prescription drug costs can vary from very low amounts to over a half-million dollars.

Mortality is not incorporated accurately. The projections assume either one fixed age, or a few fixed ages. But the true probability is that death can occur at any age.

Evaluating the probability of risk is the realm of actuarial science.

What’s needed is an actuarial tool that financial planners can use.

Presenting PDRP Plus:An Actuarial Analysis of

Retirement Goals and Risks

COPYRIGHT 2009 JACK P PAUL ACTUARY LLC

PDRP Plus Probability Distributions for Retirement Planning

PDRP Plus:

A unique and innovative service you can provide to your clients

A new financial planning tool that uses actuarial analytics

Specifically designed to account for the probability and variability of: Long-term Care Prescription Drugs Longevity

PDRP Plus

Developed by:

Jack P Paul, Actuary Fellow of the Society of Actuaries and a Member of the American Academy of

Actuaries Three designations from the American College: Chartered Financial Consultant

(ChFC), Chartered Life Underwriter (CLU) and Chartered Advisor for Senior Living (CASL)

Over thirty years of actuarial experience, most recently as SVP and Chief Actuary of Fidelity Mutual Life Insurance Company

President of Jack P Paul Actuary, LLC

PDRP Plus

PDRP Plus (Actuarial) Analysis vs Traditional Financial Projection

Traditional Projection

# of Asset Runs 500 (can be adjusted) 500 (can be adjusted within limits)

# of Liability Runs 25,000 Under 10

Total Number of Runs 12,500,000 Under 5000

Long Term Care Liabilities Customized Plan of care

Dynamically modeled using probability distribution

An event assumed to occur, oftentimes an expensive and unlikely one

Prescription Drug Costs Based on getting chronic conditions or Alzheimer’s disease

Either ignored or current level of spending used with inflation

Morbidity Customized Not customized

Mortality Customized, based on questionnaire (in some cases, based on analysis of additional medical information)

Variable - Projects varying times of death

Not based on mortality profile of client

Fixed – one or two ages only examined

PDRP Plus

PDRP Plus (Actuarial) Analysis vs Traditional Financial Projection (cont.)

Traditional Projection

Asset Information used in Stochastic Asset Testing

Each asset categorized into one or more asset classes. Historical means, variances and covariances used, adjusted for inflationMultivariate normal distribution used to project asset returnsFull override capability depending on client preferences – means, asset class methodology can be overridden

Results can be duplicated; full control over random number generator

Year by year output by scenario is available for close examination

Varies greatly by software provider:Could project just a single asset with a mean and standard deviation;Could project actual assets, but with negative returns artificially set to zero;Could project asset classes, with historical or projected means, variances, covariances;

Results generally vary each time projection run, even with exact same input; no control over random number generator

Year by year output can’t be examined

Setting Strategies Allows insurance, plan of care, spending, annuity and investment strategies to be analyzed based on customized morbidity and mortality profiles of client to determine the chances of meeting goals

Strategies not customized to morbidity or mortality profiles Chances of meeting goals only done on asset side, not on liability side

PDRP Plus

PDRP Plus can be incorporated into your clients’: Asset Portfolio Investment Strategy Living and Other Expenses (Planned Spending)

PDRP Plus

Client profile: Single or couple; aged 60 and above; at or nearing retirement.

Method: Client fills out a questionnaire. Process: Iterations are run to solve for investment, insurance, long-

term care plan of care and spending strategies that lead to acceptable chances for success

Outcome: PDRP produces a report, shares findings with financial planner (and with client, if desired).

.

PDRP Plus

PDRP Plus Business Advantages:

Enhanced service: Enables you to more accurately compute the chances that your client will meet his/her goals

Innovative and comprehensive: Uses data, calculations and statistics not included in current financial planning software

Customized: Every client’s calculations are based on his or her own unique profile

Easy to use: You receive a report that an experienced actuary discusses with you. You can also have this professional serve as an ad hoc member of your team.

Unique competitive advantage: As the only tool of its kind in the financial planning arena, PDRP Plus distinguishes you from your competitors.

For more information:

Jack P Paul, FSA, MAAA, CLU, ChFC, CASL

President, Jack P Paul Actuary LLC

101 Mill Creek Road Suite C

Ardmore, PA 19003

610-649-2358

Website: JackPaulCASL.comJack@Jackpaulcasl.com

Copyright 2009 Jack P Paul Actuary LLC