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Accounting for Longevity in Retirement Planning
• Brett Tharp • May 12, 2020
Since the mid-19th century, the lifespan of the average citizen of a wealthy country has increased steadily, with that trend now accelerating. According to Dr. Joseph F. Coughlin, founder and director of the MIT AgeLab, some researchers estimate that average life expectancy could extend well past the age of 1001.
Coughlin also found that because a 60-year-old today has at least 20 more years of healthy living, the fastest growing population segment is over 85. His data shows that, if current trends hold, half of babies born in wealthy countries today will reach 100.
It’s Now About Longevity Planning, Not Just Retirement Planning
As an advisor who accepts these life expectancy trends, you know you can’t focus on retirement planning alone with clients anymore. Your clients are considering much more than what they’ll need to discontinue income-producing work and live comfortably.
They are expecting to live much longer, healthier lives than their parents or grandparents and not all will retire at 65. The Social Security Administration (SSA) has long recognized this trend and has been incrementally pushing back the full retirement age, which is now at 70.
Of course, your clients will still want to know what they need to retire, and you can provide personalized financial plans to help them get there. But you can go further, and take the relationship deeper, by developing longevity plans that evolve over decades and take into consideration changing goals and lifestyles at different ages.
Clients may be contemplating “next career” opportunities, getting additional education or degrees, or embracing unique living arrangements in retirement years. As their advisor, you best serve your clients by accurately accounting for longevity in their financial plans. What this looks like, however, depends on each individual client’s personal and financial circumstances.
Engaging with Multiple Generations Means Addressing Different Challenges
What retirement decisions your clients are making depends on their life stage. You must use the right bespoke strategies, including relevant content and communication methods, to get client attention. That means understanding your clients’ primary focus. For example, the average 45-year-old Gen Xer is not prioritizing planning for a retirement that is decades away. They’re planning for life today. While you can certainly show Gen Xers the value of focusing on retirement and long-term financial goals once you’ve built a relationship with them, you’re likely to have far more success engaging them by addressing their most pressing concerns first.
Gen Z, the generation whose oldest members are in their early 20s, is just starting to enter the workforce. They have distinctive concerns about managing their wealth that focus on achieving financial stability. There may not be a huge base of Gen Z clients actively seeking financial advice, but this is a good time to start engaging them through their parents and grandparents.
Millennials, as well as Gen Xers, may also have young families but are caring for older parents or loved ones simultaneously. These sandwich generation clients are conducting investment planning for their later years, but retirement isn’t top of mind. Saving for their children’s college education, considering long-term care options for elders in their care or buying a new home are.
Baby Boomer clients are on the verge of transferring some $68 trillion in wealth to heirs and these younger generations need help now2. Boomer clients also may be in retirement and want to contemplate additional investment options with advisors. They may want you to help them rebalance their portfolios, or to redistribute their assets into different investment vehicles to leave as much to heirs as possible. Living comfortably without running out of money is top priority for them. That means carefully projecting likely expenses in retirement.
No matter your client’s age, there are endless considerations when it comes to retirement planning, and each situation is unique. Increasing longevity has an impact on every single retirement plan—advisors must adjust to both generation-specific financial needs and generational longevity trends to develop accurate retirement plans.
While all are in different stages in longevity planning, each generation does have a few things in common.
Meet “Generation Stressed”
The crucial thing these generations have in common is stress. In this way, these generations are a single cohort for advisors. Besides what’s going on in the world around them, it’s clear each contends with multiple factors in their lives that leave them anxious about their financial future.
According to Coughlin, 70% of Americans disclose regularly suffering stress-related physical symptoms with 66% reporting emotional symptoms because of stress. He also found that Boomers, Gen Xers and Millennials consistently experience long-term, unhealthy stress levels.
Gen Z faces similar stressors as they begin their wealth planning journey. Coughlin’s research found that the single biggest hurdle advisors face getting clients focused on planning for their futures is stress.
Advisors can appeal to Generation Stressed by actively listening to clients and understanding both their financial outlook and their overall wellbeing. Then, they can create scenarios to demonstrate alternative courses of action that they control, while also layering in stress tests to demonstrate external factors outside their control. In this way, advisors can develop personalized plans that directly address clients’ greatest fears, and by serving as a trusted ally, guide them towards their most important life goals.
Understanding Generation Stressed presents opportunities for advisors to shift engagement and planning strategies for each generation to reach clients more effectively.
Best Engagement and Planning Strategies: A Case Study
Often, advisors get called to cross-generational advising with older clients bringing their children and grandchildren to the practice. You must develop strategies to connect with entire families and address their longevity planning challenges and objectives.
For example, international wealth management and investment services bank, BMO, has found a productive way to do this.
BMO’s toolset uses personalized engagement and longevity planning through Genevity’s HALO (Health Analysis and Longevity Optimizer). By surveying clients about family health history, personal habits, and other lifestyle factors, HALO provides more accurate projections for healthcare, longevity, long-term care, and other associated costs. They operated under the belief that when clients complete surveys virtually, they answer questions more honestly.
These candid discussions also can deepen relationships with client families across generations, generating new planning prospects. Incorporating longevity planning into their practice has lead to meaningful growth for BMO.
Retirement planning changes as longevity increases. Learn how you can better incorporate longevity considerations into your practice by starting your free trial of eMoney today. With eMoney, you can incorporate life insurance, estate plans, long-term care insurance, and more into your financial plans to better guide clients towards their retirement goals.
1. “Longevity Planning: Help Clients Envision New Retirement Realities.” Charles Schwab n.d. https://advisorservices.schwab.com/insights-hub/perspectives/longevity-planning-new-retirement-realities.
2. “U.S. High-Net-Worth and Ultra-High-Net-Worth Markets 2018: Shifting Demographics of Private Wealth.” Cerulli Associates, 2019. November 29. https://info.cerulli.com/HNW-Transfer-of-Wealth-Cerulli.html.
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