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Life Health > Life Insurance

Financial Planning For Older Clients: What Needs To Be Considered

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When it comes to financial planning, people generally want the same things as they reach their older years.

They would like an income that will support the lifestyle they desire. And they would like to leave a solid portion of their assets to their heirs or to a favorite charity when they pass away.

The first question I usually ask clients to consider is how much money they will need on a yearly basis and what rate of return they think they need to create it.

Of course, that rate has to be matched against the corrosive effect of inflation, which people usually havent taken into consideration. Even if inflation were to remain low for a clients lifetime (an unlikely event), it still can eat away a substantial portion of a persons savings”when one is not looking,” as it were.

Timing is everything, according to the saying. Where retirement is concerned, clients need to realize that rates of return on equities can vary dramatically from year to year.

The last few years have re-taught that lesson to many clientsand advisors, too.

So, assumptions about adequate rates of return have to include planning for years when the rate of return is far below the needed level and below the “timing of return risk” associated with withdrawing from portfolios at various points in time.

For example, a client needed a 9% average rate of return for 30 years, beginning in 1970, to sustain income. Then why did the client go broke in 1985, when the average rate of return of the S&P actually was 13% over that span? Because returns for certain periods during that time frame were much lower. The long haul has peaks and valleys, and if the valleys come in the early years of retirement, it can be a catastrophe.

In building a strategy for success, I always recommend plans for my clients that incorporate annuities, bonds and dividends.

This approach provides a mix of income production from a variety of sources. I think its important to balance fixed income stability with a portion of assets in growth to ward off inflation.

I also ask certain clients to consider carefully the possibility that an income for life annuity should be part of the plan, as well. Initially, some clients are put off by the expense ratio of this type of product. That is, they are put off until they realistically assess what is at stake and the solutions the product offers.

First, a guaranteed income over ones lifetime (or that of a spouse) is a valuable consideration. Because of advances in science and better nutrition, life expectancy has doubled in just 200 years. Realistically, a 65-year-old couple will need to plan for 25 years of retirement.

Knowing there is an additional income stream (assuming Social Security and/or a pension provide the base income) can be an enormous comfort as the years roll on.

Certain variable annuity products also now offer guarantee of principal for income purposes during ones lifetime.

This typically is available via an optional rider. Such a rider addresses the risk of a prolonged drop in rates of return. It creates a floor upon which investors can stand.

Steady income and the promise of preservation of principal are vital goals for those concerned with not outliving their assets. This is the context in which the additional costs have to be weighed.

Of course, a client always can “save” on costs by avoiding purchase of the product. If that is the choice, you might ask your clients how they plan to address the risks that accompany that avoidance.

Another important factor in building a solid financial plan for the rest of a clients life, as well as their heirs, is taking into account the need for some kind of organized care for one or both people as they age.

Its not too late to plan for this, even at age 65. New products offer a multi-purpose approach, including life insurance with a linked benefit for long term care coverage.

Beyond providing benefits for a variety of LTC services, this kind of product helps preserve assets for heirs in the form of life insurance if the long term coverage is not utilized.

Access to cash values, for any reason, is possible via a policy loan or withdrawal, providing another useful tool as one encounters the uncertainties of a long life. These types of transactions will impact the death benefit and the amount available for LTC. However, this coverage may make a lot of sense for many clients.

In sum, financial planning for older clients requires planners and clients to address income as well as estate issues, and to explore various solutions to meet the needs.

Michael T. Byrne, ChFC, is a registered representative with Lincoln Financial Advisors in Chapel Hill, N.J. His e-mail is [email protected].

Reproduced from National Underwriter Life & Health/Financial Services Edition, November 14, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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