Outliving Retirement Income: The Elephant In The Living Room

Insurance advisors and other financial professionals may need to help older clients make retirement decisions that clash with the notions that those clients hold close.

Case in point: Is aging in place feasible, and is working into one’s late 60s realistic?

A Harris Poll conducted in March for HomeServe USA found that two-fifths (41 percent) of Americans ages 50 and older said they do plan to live in their current homes as they age. In fact, they plan to live in their own homes until they reach age 81 or older.

As for employment, nearly two-thirds of the age 55-plus age group told the Indexed Annuity Leadership Council (IALC) that they plan to work past age 67 for financial reasons, and only 41 percent of those 54 and younger plan to retire before 67. Meanwhile, the Insured Retirement Institute (IRI) found that 36 percent of baby boomers who were still working in 2015 plan to stop working at age 70 or older. That percentage is up from 29.4 percent in 2014 and from just 18.1 percent in 2011.

Unattainable goals

Upon hearing those expectations, advisors may well say, “huh?” That’s because numerous reports indicate that neither goal may be attainable, or not without a lot of struggle and compromise.

For instance, a 2014 study by the Joint Center for Housing Studies of Harvard University found that, at ages 80 and up, people encounter cognitive, self-care, disability, housing costs, living alone and other risks that could get in the way of aging in their current homes. With the 50-plus population growing rapidly over the next two decades, the numbers of older adults who are living with disabilities also will soar, the researchers warned.

Since most of today’s housing stock is not designed to accommodate aging-related physical and cognitive difficulties, the Harvard study said, “many older households will either have to make potentially expensive modifications or move to more accessible units.”

The financial consequences are not small. The same study found that high housing costs “force millions of low-income older adults to sacrifice spending on other necessities,” undermining health and well-being.

As for working past age 67, an April study on retirement confidence from the Employee Benefit Research Institute (EBRI) and Greenwald & Associates countered that notion. Although 67 percent of current workers said they plan to work for pay in retirement, just 23 percent of those who have already retired actually did that, the researchers said.

In fact, only 6 percent were able to work until age 70.

The researchers added that they have “consistently found” that a large percentage of retirees leave the work force earlier than planned (50 percent in 2015).

An early 2015 study of middle-income baby boomers from the Bankers Life Center for a Secure Retirement found similar disparities between expectations and reality. The two-part survey sampled views of nearly 1,000 middle-income baby boomers and nearly 2,300 retired boomers. (Middle income was defined as $25,000 to $100,000.)

According to the report, the majority (69 percent) of retired boomers said they would have liked to work longer but actually retired earlier than expected. Nearly four-fifths (79 percent) of these boomers said their retirement happened for reasons not in their control, such as a personal health (39 percent), being laid off (19 percent) or could no longer perform their job (6 percent).

Financial implications

Some advisors may believe that discussing more personal or lifestyle topics with retirement clients —such as aging in place and working longer — is not in their wheelhouse. But retirement is a dynamic turning point in life, and older clients do respond to notions they hold. Without independent counsel, those responses may not take them in the direction they want to go.

The EBRI-Greenwald study points out that 40 percent of retirees with at least $50,000 in savings reported feeling concerned about the impact of stock market fluctuations on their assets just before retiring. “Perhaps in response, 41 percent made adjustments to the way their money was invested in the last three years before they retired,” the researchers said. Half moved to more conservative investments, 16 percent moved to income-producing investments, and 9 percent changed the company or advisor handling their investments.

But despite their concern about fluctuations, only 2 percent of retirees and 8 percent of workers said they were “very” interested in purchasing an insurance product with a portion of their savings that would start paying a guaranteed monthly income in the future, such as at age 80 or 85.

Suggestions

The Bankers Life study made some suggestions for consumers that may be of interest to insurance and financial advisors who work with clients on aging and retirement issues.

One suggestion was for consumers to establish a “retirement care plan” for situations where continued working is not possible. For instance, for those who are still working, the researchers said the plan might include disability or long-term care insurance. (Insurance and financial advisors would probably include in the plan the use of insurance products that create a guaranteed income stream to fund basic living expenses in retirement, including the costs of new housing the client may require.)

Another suggestion is for consumers to practice “healthy financial habits” both before and during retirement. Examples cited include reducing debt, living within one’s means and diversifying investments. (Insurance and financial advisors probably also would suggest adding periodic pay insurance products to the list, as well as nudging clients towards getting “financial wellness” check-ups.)

A final suggestion from the study is for consumers to “set realistic expectations.” (In view of the conflicting ideas about retirement intentions and actual outcome, being realistic could be a very hard but very important retirement discussion that advisors may want to have with clients.)

Why have the discussion?

The point seems to be, go ahead and open up client discussion about these sometimes sensitive topics.

The 2015 White House Conference of Aging is already doing that on the public stage. In May, for instance, it posted a Retirement Security Policy Brief (among briefs on healthy aging, long-term services, and elder abuse). Aimed at consumers, the brief discusses various financial security challenges for older Americans and highlights actions being taken.

Significantly for insurance professionals and their clients, the brief includes a caution about the risk of outliving one’s assets.

That’s the elephant in the room. Only 60 percent of baby boomers reported in 2015 that they had money saved for retirement, down from nearly 80 percent in 2011, according to IRI research. Moreover, the percentage of boomers feeling extremely or very confident of having enough money to last through retirement “has declined significantly,” to 27 percent in 2015 from almost 40 percent in 2011, the trade group said.

But there is good reason for advisors to go ahead and have those personal/lifestyle retirement discussions with clients. According to IRI, more than 90 percent of boomers who work with advisors have money saved for retirement.

InsuranceNewsNet Editor-at-Large Linda Koco, MBA, specializes in life insurance, annuities and income planning. Linda can be reached at [email protected].

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Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at [email protected].