Health-related risks can disrupt a client’s retirement

By Susan Rupe

Health-related risks are among the most underplanned and financially disruptive factors in retirement — often outweighing market volatility, inflation or recessions.

The LIMRA Retirement Income Institute’s most recent research paper, “The Growing Influence of Health Risks on Retirement Security,” found that health-related financial risks are widespread, persistent and unpredictable. Chronic illness, cardiovascular disease, cancer and cognitive decline affect a majority of older adults and often result in prolonged, unpredictable costs that can erode retirement savings over time.

Discussions of financial security in retirement tend to focus on market and economic risks, the paper said, but these factors account for only part of the risk landscape retirees face today. Unlike market shocks that produce one-time disruptions, health events often persist over many years, creating ongoing and often escalating financial risks over time.

Complicating the issue of health care expenses in retirement is that, unlike many other household budget items, health care expenses are unavoidable and highly uncertain. The longevity gains that have improved Americans’ retirement prospects simultaneously increase exposure to considerable medical expenses. As a result, health care costs introduce additional retirement planning volatility risk and the possibility of sustained asset depletion late in life. Even households that begin retirement with substantial savings can experience significant financial strain stemming from expenses associated with managing one or more chronic illnesses.

The cost of long-term care is another financial risk in retirement, the paper said. About 7 in 10 adults will require some form of long-term care services, which typically extend over several years. Duration risk is especially pronounced for women and for those experiencing cognitive decline.

“Identifying and managing health-related financial risks is not peripheral to retirement planning. It is central,” the paper concluded.

“Market volatility, inflation and economic downturns are cyclical. While they can fluctuate sharply and suddenly, over time, markets and the economy always recover. By contrast, health-related risks can last for years, if not decades. They typically worsen over time and seldom fully recover.”

Health care not easy to discuss

Chris Heye, Fellow at the LIMRA Retirement Income Institute, told InsuranceNewsNet it is not always easy for financial professionals to discuss health-related issues with clients, “but if you have a client over the age of 50, you have to.”

Heye said he once was told that “as a financial advisor, if you’re a fiduciary, you are responsible for protecting your clients from all financial risks – not just the stock market. So if you’re a financial professional, it’s your fiduciary duty to talk to your clients about health care costs and long-term care costs. Because even if you don’t think it’s a big deal and even if you look at their portfolio and think they’re going to be fine, I can tell you I know people who have millions of dollars and they’re not feeling fine.”

Talking about potential health issues in retirement might carry a stigma, but Heye provided some approaches for advisors to broach the subject with clients.

“One way to start the conversation is, ‘I've been meaning to bring this up with you. I didn't know how to broach the subject. But it’s my fiduciary duty to protect you. I know long-term care costs are high. So I really want to talk to you about them and what your concerns are.”

He said if a client has been a family caregiver, that experience is another way to open the door to a conversation about health care costs in retirement.

“Another approach is to say, ‘If we don't talk about this now, chances are it's only going to get worse. This may feel like you're giving up some control now, but trust me, if you don't do that now, you're going to lose all control down the road. If something bad happens and you’re not prepared for it, there could be drastic consequences.’ I think talking about the consequences of not talking is another way to open up the conversation.”

Finally, storytelling is a powerful tool to discuss potential health care costs in retirement.

“Get your client to talk about their family, about their experiences,” Heye said. “That process of storytelling will build a relationship much faster than if you’re talking about the latest market trends.”

Susan Rupe is editor in chief, magazine, for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].