How your client’s health impacts their wealth

Longer life. Greater well-being. Biohacks that slow aging. Researchers and health care providers promise all of these advances and more.

But what’s usually not mentioned is that healthy life expectancy — the average number of years a person can expect to live in “full health” without chronic disease or physical limitations — is headed in the opposite direction for many people.

A recent study by the National Center for Biotechnology Information chronicled the number of multiple chronic conditions reported by people of different generations. Those chronic conditions included heart disease, hypertension, stroke, diabetes, arthritis, lung disease, cancer, high depressive symptoms and cognitive impairment.

Adults ages 51 and older reported more chronic conditions earlier in life than did prior generations. For example, late baby boomers (born between 1960 and 1965) reported more chronic health problems than mid baby boomers (born between 1954 and 1959) reported at the same age. The mid-boomer group, in turn, reported more health problems than early baby boomers (both between 1948 and 1953) said they experienced at the same age. And the early baby boomers said they had more health problems than war babies (born between 1942 and 1947) reported at the same age.

This trend of more people reporting chronic diseases at the same age as the generation before extended back to the beginning of the 20th century. In essence, more people have more chronic health problems than their parents, and the number of health problems is increasing even more in younger people. There is a socioeconomic component to this trend — chronic disease is more common among disadvantaged people — but there are tens of millions of middle- and upper-income adults who are less healthy than their parents.

How can this be, given improvements in medical care? Three reasons.

First, older adults in recent generations are more likely to have conditions that increase the risk of disease, such as obesity, inactivity, unhealthy diets and diabetes. Second, screening tests identify diseases that would not have been detected in the past. Third, better medical care allows people with multiple medical conditions to live beyond the age when they would have died in the past, thereby increasing the number of chronic conditions among survivors.

Unexpected challenges of good health

Those who are in poor health face their own set of financial challenges. But people in good health face different retirement-planning challenges than those who have multiple chronic conditions. Here are some of the unexpected risks they face that can impact their retirement.

» Longevity risk. Healthy people generally live longer than those with multiple chronic conditions, which increases the risk that their nest egg may not sustain their desired retirement lifestyle.

» Health care costs. On average, annual out-of-pocket health care costs are higher for people with multiple chronic conditions, but a Health View Services report found cumulative costs are higher for healthy people because they live longer.

» Long-term care and dementia. Rather than avoid these risks, retirees who are in good health often simply postpone these events to an older age when the likelihood of needing long-term care and developing dementia is much higher.

» Decline of financial ability. Financial ability begins to decline around age 60 and continues to decline for the remainder of a person’s life. A 70-year-old generally has less financial ability than a 60-year-old; 80-year-olds have less ability than 70-year-olds, and the decline is even greater in people who live into their 90s. This is true even for people who are well educated, who manage household finances and who are experienced investors. The result is that older people are frequently the victims of financial abuse and fraud, and they experience suboptimal financial outcomes in households that manage their own finances.

» Widowhood. The likelihood of widowhood is strongly related to age. By age 85 and older, one in three men and three in four women are widowed, according to the American Community Survey. The surviving spouse often has higher expenses, lower income and a higher likelihood of needing paid home care, assisted living or nursing home care because they no longer have a spousal caregiver.

» Financial challenges. Longer life increases exposure to decades of inflation, higher taxes, reduced spending on entitlement programs and unpredictable world events that can disrupt financial markets and retirement planning.

Points of engagement

Here’s what this means for financial advisors and their clients.

» More people will live longer than their parents. Some will spend relatively more years with multiple chronic conditions. Those who are in good health face different challenges due to their longevity.

» Some middle-aged people with multiple chronic conditions won’t be able to work until the normal retirement age, and working after retirement to supplement income may not be possible for some retirees.

» Health care costs will be higher for many people at the extremes of good (higher cumulative costs) and poor (higher annual costs) health. This alone will increase the strain on retirement nest eggs, but the issue is compounded by underfunding of Medicare. Future retirees should plan on some combination of reduced benefits and greater cost shifting to beneficiaries, higher Medicare copayments, coinsurance and deductibles, an increase in the Medicare payroll tax (for pre-retirees), and Medicare premium surcharges (income-related monthly adjusted amount) that affect more retirees.

» Retirees with multiple chronic conditions may need long-term care at an earlier age because of the cumulative effect of decades of health problems. Healthy retirees may also need care because they live to an age when dementia and functional impairment are common. Much of this care will be paid for out of pocket because it will not qualify as “long-term care” since the degree of disability will be less than required by HIPAA criteria.

No matter what their health status is, clients must be made aware of all the risks that can endanger their retirement. Advisors who help clients understand how their health can impact their retirement planning will set those clients up for success in the post-employment years