What Is Attained Age and How Does It Affect You?

“Attained age” is a specific term in the financial and insurance industries. It has a distinct meaning crucial for understanding how certain financial products are priced and administered. This concept plays a significant role in determining costs and benefits related to various financial plans.

Understanding Attained Age

Attained age refers to an individual’s age at a specific point in time, often calculated for insurance premiums or benefits. It can be based on your age at your nearest birthday or your last birthday, depending on the product or institution’s method. This differs from “calendar age,” your exact chronological age, and “issue age,” your age when a policy was first purchased.

Insurers use attained age for actuarial accuracy and risk assessment. It helps determine the likelihood of future events, such as mortality or the need for long-term care, directly impacting product pricing.

Calculating Attained Age

Attained age is calculated using one of two methods: “age at nearest birthday” or “age at last birthday.” The method depends on the specific financial product or institution’s guidelines.

With the “age at nearest birthday” method, your attained age rounds to the nearest whole year. If you are within six months of your next birthday, your attained age is your upcoming age. For example, if you are 45 years and three months old, your attained age is 45; if you are 45 years and seven months old, it is 46.

The “age at last birthday” method uses your age as of your most recent birthday. If you are 45 years and three months old, your attained age is 45. It remains the same until your next birthday.

Where Attained Age Matters

Attained age significantly influences the terms and costs of various financial products, making it a relevant factor for consumers. Its application is particularly evident in insurance and retirement planning.

In life insurance, attained age is a primary factor in determining premiums. As an individual’s attained age increases, the perceived risk to the insurer generally rises, leading to higher premium costs. This is because older individuals statistically have a higher mortality rate, and the likelihood of developing health issues increases with age. For instance, the cost of term life insurance renewals or conversions often increases with attained age, reflecting the increased risk.

For annuities, attained age can influence the payout rates, especially for immediate annuities. Generally, an older attained age can result in higher immediate payouts because the expected period over which payments will be made is shorter. This reflects the actuarial principle that a shorter life expectancy allows for larger distributions over the remaining years.

Long-term care insurance premiums are also heavily impacted by attained age. Policies purchased at older attained ages typically come with significantly higher costs due to the increased likelihood of needing care as one ages. For example, premiums for a 70-year-old can be substantially higher than for a 60-year-old.

While less common for standard health insurance premiums due to regulations, attained age can still play a role in supplementary plans or specific rating calculations. In retirement planning, Required Minimum Distributions (RMDs) from accounts like IRAs and 401(k)s are directly based on an account holder’s attained age. The Internal Revenue Service (IRS) mandates these withdrawals to begin at age 73 for most individuals, with the specific amount calculated using IRS life expectancy tables, ensuring funds are distributed during the account holder’s lifetime.