Potential Years of Life Lost (PYLL) is an intriguing indicator that I came across while browsing OECD’s (Organisation for Economic Co-operation and Development) latest health care data (my weekends are exciting!). This indicator is a summary measure of premature mortality, providing an explicit way of weighting deaths occurring at younger ages, which may be preventable. The calculation of PYLL involves summing up deaths occurring at each age and multiplying this with the number of remaining years to live up to a selected age limit. Interestingly, in Israel this figure is 2,398 years lost per 100 000 inhabitants which is very low (in contrast, in the US this figure is 4,721 years).
The original intent of this statistic is to provide another way to evaluate and assess a country’s medical system. This figure is examined along with an entire slew of medical data and international comparisons highlighting a country’s absolute and relative standings on areas such as number of healthcare spending, hospital beds, MRIs, pharmaceuticals etc. In Israel we fare very well on most parameters resulting in the favorable PYLL and top ranking of average life expectancy (80.7 vs. the declining 76.1 in US).
As a financial planner I found this notion of “potential years of life lost” intriguing, as this term is what regularly encapsulates many of my meetings with clients. The decisions and choices made by clients on a daily basis have potential impact on their PYLL. In a sense, my job is to reduce PYLL by ensuring that life cycle decisions regarding savings, investments and insurances are optimal such that the PYLL is minimized whereever possible.
A person’s PYLL can be addressed in a number of ways:
The first and most important PYLL is retirement age – perhaps the most central question for people approaching middle age – “when can I retire?” The official answer for national savings entitlement in Israel is 67 for men and 62-64 for women at present (which I model age 67, as Bruce Springsteen said “blind faith in your government will get you killed” or my version, “leave you to die poor.” At the macro level, these ages are based on life expectancy, contributions to national insurance and government budgets, however for the individual this can be quantified based on current income/expenses and forecasted pension. The question is usually how much higher will expected pension be if I work X years more, which may be different than desired retirement age. Given the generous contributions to pension by employers in Israel, each additional year of income and pension contribution has a dramatic effect on future retirement scenarios. Further, by choice or circumstance, many will retire earlier than the statutory age of 67 and for a high-tech employee this might be as early as age 55.
However, there is also a PYLL in qualitative terms. From a living life fully and “each day as if it’s your last” perspective, the more years a person works might be potential years of life lost depending on the actual mental or physical strain of employment choice, the opportunity cost of time spent in leisure or family activities.
The second axis for PYLL might be medical and the importance of maintaining good health. On this front, having comprehensive private medical insurance which supplements the public system improves your PYLL. The Israeli public health system is chronically underfunded in many areas, most acutely in advanced medicine and surgery alternatives. For catastrophic situations necessitating expensive cancer drugs, overseas treatments or transplants, private medical insurance can be life-saving. However, even for less critical needs, private medical insurance can save time and discomfort. For example, Israel has a shortage of MRI and CT resources (5.2 units per 1M population vs 37.6 in US) resulting in long wait-times and the access via private system can reduce PYLL to the public system. Similarly, private medical insurance contains coverages for maintaining health and preventative procedures including diagnostic testing, and additional consultations with specialists which may not be done if insured only using the public system.
The third axis for PYLL can be applied to investment and savings as potential for returns are lost. Often investment years and potential are lost due to large amounts of cash sitting on the sidelines earning zero interest. Sometimes asset allocation is faulty or potential investment opportunities are missed due to lack of attention or knowledge. Similarly, much can be done to protect assets from the tax regimes and further increase the long-term potential years that investments and savings can last.
Navigating these axes and extending the potential years for both clients and their assets is the core of financial planning with a client. This is a long-term process, necessitating regular monitoring and adapting of investments and insurances to your financial situation as life events unfold, markets move and regulations change, learning and understanding where and how to improve your situation.