Retirement risks can torpedo even the best-laid plans.
When we approach retirement planning, we need to prioritize a client’s ability to protect against the additional primary risks of inflation, longevity, health and long-term care before we plan for their investing risk tolerance.
That’s why Part 2 of planning for retirement income is protecting a client’s income and assets from retirement risks.
A large segment of our current and future retirees is on the precipice of outliving their money. Retirement professionals can account for these risks by beginning with the premise that retirement income planning is not merely accumulation planning in reverse.
Retirement risk management for our clients needs to be holistic. It should include how to prioritize and manage the risks clients will face in key areas of retirement planning so we can help them improve the sustainability and income optimization of all their assets ─ Social Security, pensions, savings and investments, home equity, and even human capital such as their health and ability to work. Most importantly, we need to also understand which risks they can afford to assume, and which ones they can’t.
We help advisors manage retirement risks by providing CE courses from today’s experts.
We are a CE Quality Partner of the CFP Board of Standards and have over 50 courses accepted for continuing education (CE) credit for those who have earned the Certified Financial Planner® (CFP®) certification, the College for Financial Planning’s Chartered Retirement Plan Consultant (CRPC) certification, the American College’s designations (ChFC, CLU, RICP), the International Foundation for Retirement Education’s (InFRE) Certified Retirement Counselor® (CRC®) certification, ASPPA and other certification or designations.
Today’s top retirement risk concerns
The key retirement concerns retirees have today are maintaining their purchasing power, health care costs, and outliving their assets.
Maintaining the value of savings and investments with inflation in retirement is the highest priority item for both pre-retirees and retirees. It is good to see this message has gotten through, as this topic is widely addressed in 401(k), 457 and 403(b) employee education programs, as well as in the media. However, once in retirement, converting these assets into inflation-protected income requires a different approach than used during the accumulation years.
What are retirees doing to manage inflation during retirement? Because they have conflicting goals and tradeoffs – such as investing to be conservative to preserve asset value as well as investing to preserve purchasing power – they’re doing what they can readily control: cutting back on spending. Both pre-retirees and retirees also favor reducing debt, cutting spending, and increasing savings to offset inflation risk. The primary asset management tool that advisor use to preserve purchasing power – investing a portion of money in stocks or stock mutual funds – is typically not something a retiree does on their own. Today’s retirement professionals need to know how to utilize new retirement income solutions, long-term care products, and efficient frontier retirement-specific portfolios to help clients fund phases of their retirement 20 and 30 years in the future.
Health Care Risk
Health and long-term care costs are the retirement wildcards. The problem is that the longer a person lives, the longer they live — which means healthy retirees typically experience higher health-related costs during retirement than unhealthy retirees because they have more years of expenses to cover. Regularly reminding clients that taking care of their health is something they can control and can have big payoffs in terms of both lowering their out-of-pocket healthcare expenses over the long-term and increased quality of retirement, especially if the client plans to rely on human capital (earned income) during the first phase of retirement. Making informed decisions about Medicare and Medigap policies, senior retirement living options, use of reverse mortgages to fund long-term care policies or out of pocket expenses, and inflation-indexed combination products can help retirees transfer the risk of healthcare shocks.
Multiple retirement risk studies by the Society of Actuaries (SOA) since the early 2000s demonstrate that people don’t plan well for longevity risk. Behavioral finance finds that thinking through the consequence of immediate rewards for a potential future outcome isn’t a natural response for most people. In the SOA study, retirees typically plan for only five years into the future and pre-retirees plan for 10 years. In general, they also believe their money will last if their savings are managed well during their first three years of retirement.
With that short-term outlook in mind, what are people doing in the mid-market to manage longevity risk? They’re self-insuring; only 20% of pre-retirees and retirees have purchased a product or chose a retirement plan option with guaranteed income for life. The cheapest annuity in the world is Social Security. Its present value is also the largest retirement asset for most middle mass and mass affluent consumers. Making informed decisions about delaying receipt of Social Security and withdrawals from retirement savings for pre-retirees who are physically and emotionally able to can help make their money last and tremendously increase their quality of life in the later years of retirement.
A risk we don’t usually think about – retirement literacy
There is a persistent disconnect between when workers plan to retire, and when they do. Almost half retire before they plan to and in many cases, retire with little or no preparation for the financial consequences. Perhaps, then, the greatest retirement risk the mid-market has is lack of information and resources to help them make informed decisions before they retire.
Health care aside, retirees and pre-retirees don’t see much value in taking any of these actions, which is tied to the fact they don’t know what they don’t know, along with their tendency to focus on less than a 10-year time horizon when planning for retirement. It is our job as retirement professionals to understand all the risks of retirement and help them make informed decisions about when to retire, take Social Security, invest their savings, choose retirement living options, and utilize their home equity to help manage retirement risks.
Here are our courses that can help you help your clients protect themselves from retirement risks.
Topics below include how to manage longevity risk, inflation, medical costs, long-term care, choosing continuing care communities, the personal costs of caregiving, beneficiary designations and surviving spouse strategies, use of home equity to manage longevity risk, the aging brain, elder fraud, and grey divorce and retirement.
- the live or elearning webinar
- MP3 recording
- the presentation handout for notes
- exam for CE purposes with printable instant results
- Free CFP®, CRC®, reporting ($15 value)
This LIVE WEBINAR in which you may ask the presenter questions will be held on Thursday, June 21, 2018, Noon – 1:00 PM EDT – no need to take the online quiz to receive CE! If you miss the webinar you will be able to take the online recorded course 10-14 days after the live […]
Every 10 seconds a Boomer turns 60 years old. Gray divorce is what many boomers face. Among U.S. adults over age 50, the divorce rate has doubled since 1994. Contrary to expectations, long term marriages are not immune and the largest increase (55%) is in first time marriages of over 20 years. The gray divorce […]
How to Protect an Aging Client’s or Adult Child’s Retirement Security from a Medical Crisis – Annalee Kruger
Most parents want to age in place, so a medical crisis can put families into a tailspin if a plan is not in place ahead of time. Adult children who assume the role of caregiver must re-organize their business and personal lives to meet the needs of an aging loved one, as well as […]
It is well-documented that most people reaching retirement age have savings (whether in a 401(k) account or otherwise) that are inadequate to meet their consumption needs during retirement. Recent research has shown that integrating home equity with retirement savings provides a strong enhancement of the amount available throughout retirement. The enhancement is obtained by the […]
This webinar introduces the Spend Safely in Retirement Strategy, which is a straightforward method for middle-income workers to generate reliable, lifetime retirement income from any IRA or 401(k) plan. This strategy was one outcome of a substantial research project conducted by the Stanford Center on Longevity, in collaboration with the Society of Actuaries. This project […]
What’s Trending in the Field of Aging? Connecting the Dots with Financial Services – Sandra Timmermann
Retirement security, long term care, housing and lifestyle are top of mind not only for the 50+ population but also for policymakers, government officials and businesses. Boomers are redefining aging in retirement and heralding in new community movements, technology and services. Find out how these new trends connect with financial services and retirement planning, and […]
Most senior adults prefer to stay in their home as long as possible – after all, home is where the heart is. People who are retired or will soon retire say in surveys that their future health care costs are an important financial concern. One reason is that they know from their own experience that […]
Gain insight into how important it is that we help our clients prepare financially for retirement by considering their total wealth, and not only their investable assets. Financial assets, such as stocks and bonds, are only one component of an investor’s total economic worth. Other assets, such as human capital, real estate, and pensions often […]
There have been sweeping changes in the Extended Care Industry in the last few years. What hasn’t changed is the baby boom generation is not getting younger or healthier as 10,000+/day turn 65 and move into their “Golden Years”. In just 11 short years the first boomers will turn 80. This is the average age […]
In an estimated 36.5 million households across the country, an adult is providing unpaid care to a family member. Sixty-six percent of those caregivers are women, according to the “Caregiving in the U.S.” study by the National Alliance for Caregiving. Caregivers spend on average 20 hours each week providing care, leaving them with less time […]
Gain insight into how to help employees and clients better understand, prepare for and manage their retirement risks based on fifteen years of research conducted by the Society of Actuaries. How can you help increase your clients’ and employees’ chances of retirement success? This session highlights key research conducted by the Society of Actuaries, much […]
Reverse mortgages for the mid-market’s largest asset, home equity, may now have a place in mainstream investment and cash management during retirement. As retirement counselors, we need to understand options for helping retired clients appropriately use their home equity if their economic situation requires it. Gain insight on how a reverse mortgage home equity line […]