Senior retirement concerns: Know your clients
SIMA (Senior Insurance Marketing Association
This article is about the concerns pre-retirees and retired persons have about retirement.
The top concern among many individuals aged 45 to 65 is maintaining their current standard of living. Pre-retirees often have concerns about:
- not maintaining current standard of living,
- healthcare/prescription costs,
- availability of Social Security,
- outliving assets,
- inflation of U.S. dollar,
- market conditions/performance during retirement,
- leaving legacy for children/heirs,
- impact of taxes on income,
- paying for children's education, and
- caring for elderly parents.
Lacking a plan
Only half (51 percent) of pre-retirees have actually completed a detailed retirement income plan according to some studies. Some reports indicate 31 percent of those born between 1925 and 1945 still do not have a plan for retirement. Among those born between 1946 and 1955, 42 percent lack a retirement income plan. The number is even higher at 53 percent for those born between 1956 and 1964.
Pre-retirees are willing to make other sacrifices to have the type of retirement they want, including delaying retirement, saving more and continuing to work while in retirement.
Soaring health care costs
Rising health care costs concern everyone and can potentially consume the largest portion of retirement income. But Medicare covers only a percentage of medical bills and prescriptions for all Americans, so your clients out-of-pocket costs are likely to be large and growing in retirement.
Fact: A couple retiring today at age 65 will need an estimated $197,000 in savings to pay for their lifetime health care costs — $260,000 if you include nursing home costs, according to the 2010 study conducted by the Center for Retirement Research at Boston College.
Then there's the impact of taxes and inflation on retirees living on fixed incomes. When you look at the last 65 years, today's top and lowest marginal tax rates are comparatively low. Increased government spending on health care and other initiatives, combined with rising deficits, could mean a greater chance that taxes will move higher in the years ahead.
Inflation may also be historically low today. In the wake of the Great Recession, the cost of living for even the most basic necessities — food, housing, utilities — is likely to rise. When you are working, your wages generally rise as consumer prices increase, so normally inflation is not a big concern. That all changes in retirement. When you are living off your retirement savings, inflation looms as a significant risk. For many individuals in the critical years just before or after retirement, inflation can make things that have been staples to your lifestyle seem like luxuries.
Some retirees are forced to choose between paying utility bills and responding to their health care needs. And although Social Security and some pension programs do adjust income for inflation, the money withdrawn from your retirement savings to cover living expenses is greatly devalued by inflation.
The good old days may not have been
If you thought it was tough financially on seniors the past few years, it was nothing compared to the drought following the Great Depression in 1934. More than half of all seniors back then lived in poverty and often went hungry.
In 1935, our government came to their rescue and adopted Social Security. In the beginning, Social Security was a single lump sum payment instead of the lifetime monthly check today. The first ever recipient of Social Security worked a single day and paid in one nickel; retired the next day and got back 17 cents.
The first person to receive lifetime monthly payments was Ida Mae Fuller, who began to collect benefits on Jan. 31, 1940, on her 65th birthday. Ida Mae had paid into Social Security a total of $24.75 and her first check from Social Security was $22.54. She lived until age 100.
During her lifetime, she collected $22,888.92; that was a pretty good annuity investment for her.
In addition, the work force is changing. In 1940s there were 42 workers for each retiree. During the baby boomer generation of the 1950s, the ratio had dropped to 16 to 1 and as of 2010, there are less than three workers per retiree recipient.
Uncertainty creates unique opportunities for you to inform and educate you clients and prospects about tax advantaged solutions for their retirement planning. Lifetime monthly income is more desired by baby boomers than wealth accumulation is. Having an institution such as a bank or an insurance company standing in the breach between financial success and failure is paramount.
Just ask your best prospects how they feel about their future monthly income. Today Social Security is in a precarious position. Without changes immediately, it will not be able to pay out the benefits promised to retirees.
It’s not a political problem but a math problem. In 1935 when Social Security began taking FICA withholdings, the average life expectancy for a male was age 60 and age 64 for a female. Yet Social Security payments didn’t begin until age 65. Today life expectancies are nearer age 83, yet Social Security begins at age 67 at the very latest.
Life insurance illustrations are run up to age 120. Maybe our role is to educate our senior clients, not selling them a product.