7 Threats That Can Derail a Client’s Retirement

What happens to the family income when a death occurs? Oftentimes, you’ll hear that retirees don’t need life insurance. After all, they have enough assets to retire, so they’re self-insured, right? Not so fast. It is imperative to evaluate survivor benefits in pensions and Social Security.

What may feel like a comfortable retirement can become downright terrifying upon the death of a spouse. Income sources are often halved, yet lifestyle costs for the widow remain very similar to those of a couple.

Widows may need to pay for home maintenance that was once done by their spouse. Travel costs can increase because of trips to visit family located across the country. The last thing a widow needs to be concerned with is where to get income after the death of her spouse. By asking a few simple questions when times are good, we can insure them against a disappointing finish to a race well run.

5. Legacy Risk

Retirement income planning is all about balance. Balancing often competing interests is the name of the game. One example is that of legacy risk. Case-in-point: Your client wants to maximize her retirement income and wishes to leave assets for her children and grandchildren as a legacy. Meanwhile, she would like to avoid all market risk and have abundant flexibility and access to cash for unforeseen emergencies. In this example, building a maximum income plan using guaranteed annuities will most likely eliminate any meaningful financial legacy or bequest for her family.

While the annuities may maximize her income, they will likely be exhausted upon her death, leaving nothing behind. This may be fine if she has a home and other non-financial assets that will become part of her legacy. The risk here is that her wishes are not well-documented and provided for in her planning. 

6. Health Care Expense Risk 

It’s no mystery that health care is on the minds of aspiring retirees. How can we plan for this risk when we cannot accurately quantify the cost? Reduce the variables. As in a mathematical equation, too many unknowns create an unsolvable problem. In retirement planning, too many variables can prevent us and our clients from adequately addressing any particular concern. The result is a swirling storm of questions and partial answers.

Rather than questioning whether your client can afford to pay more for health care during retirement, have them track their spending for a month or two. Learn how much money is going out each month to maintain their chosen lifestyle. Compare that to known income sources like Social Security, pensions, income available from their investment portfolio, etc. Once you know their true lifestyle costs and income, you can discover how much is truly excess or discretionary.

This may provide more wiggle room to account for rising health care costs. By isolating this variable, you can perform true risk assessment for them and move toward greater clarity. 

7. Long-Term Care Risk 

For people age 65 or older, there is a 40 percent chance they will step foot into a nursing home during their lifetime. This risk is not new to most advisors. What’s interesting is how much this risk affects their retirement income later in retirement. Some refer to this retirement spending curve as the “retirement smile.”

The  most damaging inflationary force for the retiree is long-term care expense. We have so many tools at our disposal compared to 10 years ago, that it’s a shame to not be well-versed in this planning area. As longevity continues to increase, more and more of our retired clients will qualify to receive income from a long-term care qualifying financial product. Why not address long-term care risk for your client with leveraged and tax-advantaged dollars in the form of traditional or hybrid long-term care products.

Want to become really valuable to your client? Regularly feature an estate planning attorney at your client events and meetings to provide them with legal and estate planning that complements your insurance and financial-based offerings. Your clients will love the additional options and will thank you down the road, I promise. 

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