As life expectancies gradually become longer, company pensions continue to disappear, and long-term care becomes more expensive, the unwelcome possibility of outliving one’s money has become more of a concern.
This is why a frank discussion about health, longevity, and long-term care needs to be part of every retirement strategy session with your senior clients.
Accurate life expectancies are the foundation for great retirement planning
Many advisors use age 95 as a standard life expectancy for retirement planning, because it’s a conservative estimate. There is nothing wrong with this; when it comes to finances in one’s advanced years, being conservative is important.
However, in order to make the most accurate predictions, some advisors have opted to use a method like a life expectancy calculator instead of the industry standard for every client. This will allow you to determine a more personalized life expectancy range for each senior client you work with.
Health doesn’t just affect life expectancy - it also affects long-term care projections
A senior client’s health history and outlook are vital when it comes to effective retirement planning.
For example, a client who lives only to age 70, but spends the last 5 years of life in a long-term care facility, could very well end up needing more money in the bank than a healthy person who ages in place and lives 10 years longer.
Long-term care has become financially burdensome for most families, and those expenses continue to grow.
Since Medicare and Medicaid cover only a percentage of the care most people entering nursing facilities need, seniors - and their families - are left to make up the difference. With annual costs for a private room in a nursing home topping $90,000, that difference is usually significant.
Having an open discussion of your client’s health history, family health history, and health expectations can help set realistic expectations for your clients regarding how much they may need to cover long-term care.
This is also a good time to bring up alternatives for paying for long-term care, like life settlements. These solutions allow clients to sell their life insurance policies to buyers for a lump sum of cash that’s greater than the policy’s cash surrender value.
Life settlements, when transacted through a trusted financial advisor and a life settlement broker, can allow clients to liquidate an otherwise inaccessible asset. Many people put the lump sum into an account that makes regular payments to the long-term care facility, but there’s no obligation to do so. The money a policy owner receives is theirs, to use however they wish.
Developing accurate expectations of longevity and how that will affect your senior clients’ financial outlook is hugely important. For more on longevity, read our post “The Most Important Topics in Longevity Planning.”