There are two challenges that must be considered to build a successful retirement for your prospects and clients: (1) increasing longevity and (2) increasing costs.
First, we must plan for increasing longevity. If your clients know for certain they will retire at age 65 and die at age 70, then planning for retirement is easy. But clients could retire at age 65 and live to age 95 or beyond.
That’s a different endeavor to plan for. Retirees must find a way to guarantee income during retirement without experiencing losses, and this must be achieved in a volatile investment climate that also provides zero or even negative interest rates for long periods of time.
Rising life exptectancies
With Americans living longer than ever before, the longevity issue will also weigh on the fundamental programs that people over age 65 rely on as a safety net for income and health care. Among them:
When Social Security began in 1925, the life expectancy of an American was 62 years. The creators of the program never conceived that Social Security would pay benefits for 20 or 30 years or more. There are not enough people paying into Social Security to support those who are receiving benefits.
When Medicare began in 1965, the life expectancy of an American was 70 years. The designers of the program did not realize that providing access to the quality healthcare that Medicare provides would continue to lengthen life spans, but it did.
Medicare also continued to increase in cost. As a result, entitlements, defense and interest on the debt will consume all federal revenues by 2019. By 2023, federal revenues will only be enough for entitlements and interest on the debt.
We will need to make adjustments to these programs soon. And you should make sure that your clients are prepared and ready.
Rising pre- and post-retirement costs
Second, we must plan for increasing costs both before and after retirement, particularly health care costs.