Mortality Forecasting with the Lee-Carter Method: Adjusting for Smoothing and Lifespan Disparity

Reliable mortality forecasts are an essential component of healthcare policies in ageing societies. The Lee-Carter method and its later variants are widely accepted probabilistic approaches to mortality forecasting, due to their simplicity and the straightforward interpretation of the model parameters. This model assumes an invariant age component and linear time component for forecasting. We apply the Lee-Carter method on smoothed mortality rates obtained by LASSO-type regularization and hence adjust the time component with the observed lifespan disparity. Smoothing with LASSO produces less error during the fitting period than do spline-based smoothing techniques. As a more informative indicator of longevity, matching with lifespan disparity makes the time component more reflective of mortality improvements. The forecasts produced by the new method were more accurate during out-of-sample evaluation and provided optimistic forecasts for many low-mortality countries.