Mortality Risk in Joint Plans with Single Life Cash Flows

okay I wanted to share a quick um

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kind of explainer about how

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lab deals

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deals joint

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plans when there are cash flows that

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that only apply to one individual so

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single life cash flows so I've got kind

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of extreme situation but one that comes

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up actually

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a fair amount which is this family has a

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lot of uh

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pension income that goes away if one or

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the other person dies so here Mary's got

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a pension that ends at her death Mike

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has one that ends up his death

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and the thing that tends to happen here

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especially if there aren't a lot of

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basement assets

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is that you'll get a total income level

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that includes some portfolio withdrawals

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but the the level seems kind of low

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so for example here

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um we have the the retirement smile and

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it's going down we're you know in the

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kind of the flat you know unadjusted

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version we're actually going to end up

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adding to the portfolio later and the

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reason for this is that

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um the software in the background is

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adjusting for mortality risk so it's

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saying look the the chances that both

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these pensions are around for the for

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the length of the plan

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is pretty low so uh you know at first at

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the beginning it's extremely high that

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both of them are around but But as time

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goes on one or the other is likely to be

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gone and so in order to kind of provide

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a a way to to counteract you know this

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this problem right where if one or the

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other were were gone they would have a

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lot less income we're going to spend

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less now so that if one of these goes

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away they can start drawing more from

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their portfolio to to make up for that

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now if you had a plan where you said no

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I don't I don't want to do that I don't

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want to I don't want to plan to make up

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for the Lost pension income if one of

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the other person dies I just we'll just

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take the hit or maybe we'll take most of

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the hit

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um you can actually do that the way you

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do it is I'm just going to copy the plan

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here so that we keep the other one

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around

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um but let's say for example that we

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wanted to to go ahead and just absorb

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the loss of Mary's pension if she dies

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and um

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and Mike here doesn't what I'm actually

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going to do is is make it uh last both

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their lives now that seems weird right

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but but what that's really doing is

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saying don't don't mortality adjust to

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this in the background don't don't

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account for mortality risk just just you

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know give me the amount I could spend

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um if if I didn't want to um to kind of

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uh adjust for that risk

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and so here now you can see it it goes

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out quite a bit farther

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and my

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um my gross spending is higher

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if I said that I would absorb either one

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whichever one goes away I'll I'll absorb

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it

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then I'm gonna make mics also now his

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his was a lot bigger so that's probably

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why

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okay so now what we'll see is that we

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actually can spend throughout

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throughout the retirement we're going to

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spend some money we're never planning on

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saving any of it

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um you know we're never spending on

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planning on saving either of the either

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of the pension flows

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um at any point now what this tells us

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is you know if Mary dies Mike's just

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gonna not have any of the light blue

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stuff

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and if Mike dies Mary's just not going

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to have any of the dark blue stuff you

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could actually say well you know that's

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a little bit extreme especially maybe

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because Mike's is so big here let me let

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me say that we'll we'll retain

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the mortality risk

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um

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you know sum of mics let's say 50 or

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something right so now when Mike dies

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you know we'll drop it to uh

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to 250.

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so now I'm going to absorb all

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of the loss of Mary's pension but I'm

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only going to absorb half of mics and so

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you can see here it's also it's still

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basically what you're seeing by the

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portfolio Jaws being lower than you

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might expect is that

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um the system is saying hey you're going

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to need to spend less and maybe even

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save some to make up for uh for

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mortality risk in this plan so hope that

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helps thanks