The changing face of retirement. What does that mean? Well, given the human propensity for individuality, it could mean 76 million different things over the next 25 years. Retirement is changing because boomers are like this, or because boomers are like that – and keep in mind that boomers are your future clients. Retirement is changing also because of factors boomers can’t control, chief among them longevity and soaring health care costs.
Taken together, those two factors represent a more daunting challenge than boomer spending habits or a generational lack of savings. That health care costs will continue to rise is given, as are extended life spans.
“Longevity and health care are intertwined,” says Christopher Van Slyke, CFP and managing partner of La Jolla, Calif.-based Capital Financial Advisors LLC. “People are going to live a lot longer, but there is a cost attached to that.”
The bulk of all health care spending occurs in the last few years of a person’s life, when health problems are most severe. As more and more people live into their late 80s and early 90s – 20 and 30 years into retirement – spending for health care will skyrocket just to get them into their last few years, adding to the overall burden.
Health spending already accounts for nearly one-quarter of after-tax spending for adults age 65 and older, a significant amount. According to a brief from the Center for Retirement Research at Boston College, that percentage will rise to 35 percent by 2030 for older married couples and 30 percent for unmarried older adults.
“Our projections imply that by 2030, when the youngest baby boomers are old enough to qualify for Medicare, older adults will devote implausibly large shares of income to health care,” write the brief’s authors, Richard W. Johnson and Rudolph G. Penner.
Figures like that should be enough to get the attention of any boomer client or prospect, but then what? How can advisors turn their clients’ awareness into action in their pre- and post-retirement years? Fortunately, says Jim Elder, CFS, boomers’ perception of retirement is already changing.
“Many boomers, when they talk about retirement, plan to retire and do something different,” says the owner of Montrose, Colo.-based ElderAdo Financial. “Working in retirement is not a bad thing if you have a good outlook.”
And for a substantial number of boomers, working in retirement will be part of their reality. Another part of the new reality is shattering the old perception of working years as the accumulation phase and retirement years as the distribution phase. Boomer retirement is sure to be a combination of accumulation and distribution – if they expect their money to last as long as they will.
Perhaps the harshest reality boomers will face as they near retirement has to do with their consumer lifestyle. Generation Spend’s debt load may be difficult to overcome. It’s one thing to make payments with a steady and substantial paycheck; it’s quite another without that money.
“More people are coming to retirement with debt,” Elder says. “It’s OK to have debt at 45 or 50. But once you’re on a fixed income, it’s harder to meet that debt obligation.”
These realities add up to challenges for advisors, tests of their professional skills and powers of persuasion.