Clients Need to Get Real about Longevity: How Advisors Can Help
The role of the financial professional has evolved dramatically in the past few decades. In the “old days,” advisors acted much like stock brokers, focusing primarily on goal planning and wealth accumulation. Clients expect a whole lot more from advisors today, including retirement planning. Yet, many advisors fail to have the tough conversations about longevity that enable them to tailor solutions to each client’s specific needs. We need to do better.
Key Takeaways:
- You can’t optimize client retirement outcomes without getting real about longevity.
- Clients grossly underestimate how long retirement will last. Advisors need to set them straight.
- Advisors need to do a better job personalizing longevity estimates.
- With more retirement years to fund, clients can’t rely on investments alone.
- Positioning annuities as a “lifetime income strategy” puts clients’ minds at ease.
You can’t optimize client retirement outcomes without getting real about longevity.
Failing to drill down on longevity is also a missed opportunity for advisors seeking growth. The good news is that advisors who do a better job educating clients about how long they’re really going to live can help improve client outcomes with more intuitive retirement plans, while conquering client retention and acquisition goals along the way.
On a recent episode of The Breakthrough Advisor Podcast, Simplicity InsurMark Virtual CMO Jack Martin sat down with David Blanchett, Managing Director, Portfolio Manager and Head of Retirement Research at PGIM DC Solutions to discuss the critical role of longevity risk and the necessity of personalized solutions and client education in retirement planning.
During the podcast, Martin and Blanchett provided insight on the challenges consumers face today when it comes to saving for retirement and practical steps advisors can take to help clients prepare for what lies ahead. It all starts with having tough conversations about longevity.
“Advisors need to be educating their clients about how long they’re going to live and then revisiting that assumption regularly in their financial plans,” Blanchett says.
Clients grossly underestimate how long retirement will last. Advisors need to set them straight.
In his extensive research on retirement, Blanchett looked at more 32,000 retirement plans and found that 70% of those plans had a projected end-of-life date of 90, while 20% of plans were around 95. That means the average client is underestimating retirement duration by 5-10 years or more—and we keep living longer.
According to Blanchett, “If you look at surveys, younger retirees, those who are 65 years old, consistently underestimate how long they’re going to live. That changes though as you move through retirement. In our 70s and 80, we start to overestimate how long we’re going to live. Say theoretically that the average 65-year-old thinks they’re going to live 20 years in retirement. That perspective, if not addressed directly, is going to radically affect the strategies the person wants to use in retirement.”
Compound that with the onslaught of physical and cognitive issues retirees face with age, clients have even more retirement expenses to worry about.
Recent research published in JAMA on global healthspan-lifespan gaps revealed other startling facts. Not only is lifespan increasing, the number of years Americans are living with health issues (the mean healthspan-lifespan gap) increased from 10.9 years in 2000 to 12.4 years in 2019. The research also showed that women have a 2.6-year wider healthspan-lifespan gap than men.
Advisors need to do a better job personalizing longevity estimates.
Yet, many advisors fail to consider clients’ unique longevity risk factors and rely on general estimates instead. This can be problematic for healthier and affluent individuals, who tend to live longer and need to plan for 30 years of retirement or more, as well as the not-so-healthy folks who are spending more years in poor health and need to plan for long-term care.
In his research, Blanchett found another troubling trend. Many advisors don’t even account for the different life expectancies of males compared to females when making longevity estimates for couples.
“Women live longer than men by between two to four years on average. So, if you’re assuming age 90 for a male, you should at least use 92 for a female, right? And what was troubling to me was that advisors would use the same age for both spouses. With a married couple age 65, male and female, and 90 as your end age, there’s about a 70% chance one member of that household would live longer than age 90 right now. So, you are radically underestimating how long retirement is going to last,” Blanchett says.
These are just a handful of longevity factors that advisors need to take into consideration during retirement planning. Fortunately, free longevity calculators are widely available, as is software like Genivity’s health analysis and longevity optimizer, HALO.
Check out our past blog on HALO to learn how it helps advisors personalize longevity conversations and optimize client outcomes.
With more retirement years to fund, clients can’t rely on investments alone.
When clients face the reality of funding a longer retirement, the fear of running out of money often sets in. As we recently addressed in our blog about cat food nightmares, even millionaires are afraid of running out of money. How can advisors put their minds at ease?
Clients need retirement solutions tailored to their personalized longevity risk and projected healthcare expenses, along with other retirement goals (travel, legacy planning, etc.). Delaying taking Social Security benefits is one way to get a monthly boost of guaranteed income, and it’s a lifetime benefit people can rely on (at least for now).
People love the fact that they can expect that check every month until they pass on. But for most clients, Social Security won’t go far enough. Fortunately, it isn’t the only lifetime income strategy available.
Says Blanchett, “I have a pretty good answer for longevity risk, like buying an annuity. Right? That’s a really good hedge if someone says, ‘I don’t know how long I’m going to live. I want to create income that covers me.’ I don’t know that there are great answers today for long-term-care risk. There are insurance policies, there are annuities with riders, but anyone who has a client or knows someone with those policies, they’ve seen a significant increase in their premiums for long-term-care insurance.”
To be clear, Blanchett isn’t advocating relying on annuities alone but including them as a part of a diverse portfolio. When positioned as a lifetime income strategy, annuities can bring peace of mind to clients who want to know they have enough money coming each month to meet their basic needs and beyond.
We have the tools advisors need to help clients optimize retirement outcomes
At Simplicity InsurMark, we help ambitious advisors streamline their advisory practices, while providing clients with industry-best retirement solutions. To learn more about the marketing tools, educational resources and mentoring opportunities we offer—as well as our proven Value Engineering Process—schedule a discovery call today!
As an ADO – Advisor Development Organization™, Simplicity InsurMark provides solutions to meet the ever-evolving needs of financial professionals with a mission to protect and enhance the financial security of every home in America.