INCLUDING LIFE EXPECTANCY AND HEALTH CARE COSTS IN RETIREMENT PLANNING
The collision between economics and demographics is increasing client concerns about running out of money in retirement.
Defined benefit plans are pretty much a thing of the past, and people are living longer. Clients need income that is sustainable and that they will not outlive. The cost of health care continues to rise more rapidly than inflation and is one of retirement's biggest expenses. Many boomer-aged clients, who are nearing retirement also have responsibilities to parents, children and other loved ones.
For families and caregivers, support for aging or impaired loved ones is a financial, physical and psychological drain. In addition, two major bear markets and historically low interest rates have taken a toll on many people's retirement savings. Many clients are understandably concerned about how they will make it through their retirement years.
For the well-informed and proactive advisor, however, this is an unprecedented opportunity. Estimates are that 8-10,000 boomers retire every day. Understanding the issues they face and bringing resources to the table will help you to help your clients, set your firm apart and grow your business.
In this issue of The Wealth Counselor, we will examine why the aging, healthcare and long-term care conversation is important to all: clients, attorneys, financial advisors and the other members of the advisory team.
The Baby Boomer Client
"Baby boomers" are people born between the end of World War II (1946) and the introduction of oral contraceptives (1964). They are now age 49 to 67. Because most of the clients of many advisors are between age 50 and 69, "boomer" issues and demographics are vitally important.
The Increase in Life Expectancy
Life expectancy has risen 60% in the last century. At age 65, an American male in average health has a 40% chance of living past age 85; for females, it is 53%. For a 65-year-old married couple in average health, there is a 72% probability that one of them will live past age 85. For Americans more healthy than average, those chances are 50% for men, 62% for women and 81% for one or both of a married couple.
The Increase in Health Care Costs
Fidelity estimates that a couple age 65 retiring in 2012 would, on average, need $240,000 in excess of Medicare benefits to cover their lifetime medical expenses (based on a 17-year life expectancy for the husband and 20 years for the wife). Plus, that $240,000 does not include expenses such as over-the-counter medication, most dental services and long-term care. Importantly, Fidelity's 2012 estimate is 4% above its 2011 estimate and a 50% more than its 2002 estimate.[i]
Fidelity projected that the average female age 65 would live to age 85 versus 82 for the average male. Because of the usual age disparity between spouses, those longevity differences and divorce, the vast majority of women in the U.S. will die single.
Carrell Blanton Garrett & Van Horn, PLC
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