Age Wave founder Ken Dychtwald. It’s crucial that advisors talk to retiring clients about health care costs, Dychtwald says.

Given the impact of the coronavirus pandemic, there’s a chance that in retirement, only 25% of all U.S. working households will be able to maintain their current standard of living unless they work longer, move to lower-cost housing and reduce many other expenditures, argues Ken Dychtwald, co-founder and CEO of Age Wave, in an interview with ThinkAdvisor.

Surprisingly, amid the virus, the cohort that has suffered financially the least is retirees: They’re fortified by the safety nets of Social Security and Medicare, notes Dychtwald, a psychologist and gerontologist.

Further, older people are psychologically coping with the pandemic better than Generation Z and millennials, whose “mental health problems are going through the roof,” according to Dychtwald, 70.

The bestselling author’s new book is “What Retirees Want: A Holistic View of Life’s Third Age,” co-written with Robert Morison (Wiley-July 2020).

Chapter 9 is especially pertinent under the circumstances. It is titled “Financial Longevity: Retirement is the Biggest Purchase of a Lifetime — That Many Can’t Afford.”

In the interview, Dychtwald discuses several ways to fund “the new” retirement, nearly all of which involve “course corrections” that require expense and spending reductions. He expects, however, that pre-retirees will buy annuities for the insurance contracts’ lifetime guaranteed payments.

Dychtwald launched Age Wave when, sparked by the trend of increased longevity, he bet that the focus would shift from younger consumers to the needs of baby boomers and the so-called silent generation, who preceded them.

Helping companies and governments serve the growing aging population, the firm’s clients include Allianz, Bank of America, Charles Schwab and Merrill Lynch.

Last month Age Wave and Edward Jones, in partnership, released an in-depth study: “The Four Pillars of the New Retirement,” which surveyed 9,000 people in the U.S. and Canada.

In the interview, Dychtwald reveals some of the study’s key findings, including pre-retirees’ and retirees’ biggest financial worry.

ThinkAdvisor interviewed Dychtwald on Aug. 26. Speaking from Orinda, California, where Age Wave is based, he noted that the five-generation survey kicked off in November 2019. However, when the coronavirus pandemic took hold a few months later, Age Wave halted the investigation.

“But Edward Jones said, ‘Let’s do it because there’s never been a more important time to know what people are frightened about and what they’re hoping for.’ So,” Dychtwald says, “we rewrote the questions and went back in.”

Here are highlight of our interview:

THINKADVISOR: Half of all U.S. working households are “at risk of being unable to maintain their standard of living” and lifestyle in retirement, according to a 2018 study by the Center for Retirement Research at Boston College that you cite in your book. Given the pandemic’s impact, what would you estimate that figure to be now?

KEN DYCHTWALD: My guess is that probably 25% has the financial wherewithal unless they “course correct” by working longer, not continue to live in the same home and reduce their expenditures.

Americans’ monthly savings rate has risen during the pandemic. However, in 2019 the annual rate was only 7.6% of income. How does that lack of savings affect retirement planning?

As they approach retirement, many baby boomers are simply finding themselves unprepared. During their lives, they’ve spent more than they should have and unfortunately, never saved for a rainy day. Guess what? It’s raining.

Is there more leakage of 401(k) plans now?

I imagine that people who had been saving to put their kids through college but have lost their job and have a rent payment due might be breaking into their 401(k) accounts to handle the emergency. And I wouldn’t be surprised if those numbers are large. The long-term impacts of people cutting into their nest egg are going to be felt for decades.

People no longer have a “three-legged stool” for retirement: personal savings and retirement accounts, guaranteed employer pensions, and Social Security. Investors can’t rely on their portfolio to fund retirement, you write. Please elaborate.

A very small percentage of the American population has an employer paying for a pension, and savings rates have been scary low. We did a study right before the book came out that showed that 80% of the American public didn’t know how much money they’d need for retirement. That’s irresponsible.

But what about Social Security benefits?

Government programs are the only certain leg of the stool, but there’s speculation that these programs are going to be strained or even broken in the years to come.

So how are people supposed to fund their retirement?

If you can put your own personal pension together: a 401(k) plan, a 403(b) plan [and so on], you should, even if it hurts. But people are going to have to take a deep breath because the playing field has changed, and they’ll need to make some course corrections.

Meaning what?

They may have to work longer, move to lower cost housing, relocate, have multi-generations move in with them or perhaps have roommates and maybe give up some of their bucket list. [In sum], they’ll need to find ways to feel nourished and have a meaningful life without spending so much money.

What else could pre-retirees do to help themselves?

People will contemplate [buying] annuities. If they’re worried about winding up as a burden to others, this is an insurance track that will guarantee them a paycheck for life. People feel a sense of accountability when they get a certain amount each week or month rather than receiving [money] in a lump sum.

What’s wrong with getting a lump sum?

It makes people nervous because they don’t know how much they can afford to use. But a paycheck, of sorts, resembles what it was like when they were actively earning a living.

Are pre-retirees all of a sudden going to be financially savvy enough to make these critical decisions? Most haven’t been so sharp about their finances up till now, and you write that only 26% of Americans have financial advisors.

Most people are confused. Many financial firms are only interested in the high-net-worth individual, though a lot of them are starting to realize they need to do a better job of helping common folks, not just the affluent. Edward Jones, for example, views itself as a Main Street firm, not a Wall Street firm. Edelman Financial Engines is also trying to be more accessible for the general population. I think you’re going to see more and more of that.

What responsibility do FAs have to advise clients of the extent of health care costs in retirement and to factor those into their planning?

If you claim to be able to tell a client that there are things to be concerned about in your financial future and you leave out health costs because you’re not fully schooled in the subject, that’s irresponsible. You’re not doing your job, and one day you’re going to be liable. In our study with Edward Jones [released in August], we found that pre-retirees’ and retirees’ greatest financial worry was health and long-term care costs.

Why don’t FAs try to help clients more about those expenses?

Most financial advisors aren’t educated about [them] to the extent that they can give counsel. That’s unfortunate, especially since people have lived with a bit of a fairy tale that somehow they won’t have out-of-pocket health care costs in their later years and won’t ever need long-term care. So, they [figure] that they really don’t need to think about savings and preparation.

Amid the pandemic, how are various age cohorts faring financially?

Surprisingly, retirees have been least negatively impacted because they have the safety nets of Social Security and Medicare. And they no longer have mortgages to pay. So while retirees are more vulnerable to the coronavirus illness, financially they’re more fortified and secure than people 10 or 30 years in front of retirement.

How are pre-retirees ages 59 to 65 doing financially?

They’re getting the wind knocked out of them because the majority weren’t sufficiently prepared before coronavirus — they hadn’t saved enough to begin with. And now, in what should be the peak of their earning years, there’s growing uncertainty about work, worry about the cost of retirement, and frailty within families. A lot of middle-aged people are finding themselves short on cash, very unprepared for stopping work and struggling to pay bills.

What about younger people — Gen X, millennials and Gen Z?

There are long-term potential negative impacts of the pandemic for them because many are putting retirement planning off to the side while they try to just get through this year. Thirty- and 40-year-olds — about 20 million Americans — have stopped making contributions to savings programs. They’re saying, “I need the money to pay my rent. I don’t know if I’ll even live long enough to retire. I’ll worry about that later.”

Are they finding it hard to cope psychologically, too?

A lot of young people have no point of view about the pandemic other than fear and anger — [Gen Z’s and millennials’] mental health problems are going through the roof.

Your study conducted with Edward Jones finds that women have a greater need than men for financial planning before and during retirement. Please explain why.

First, a woman is paid less than a man — 82% for the same work. During her lifetime, that adds up to a $400,000-plus differential. That was a shocker for us. There’s not only that wage gap but also a health gap and a caregiving gap that women encounter.

Why hasn’t a light been shined on all that previously?

The financial industry has been overwhelmingly male-oriented. They need to snap out of it and realize that in the years to come, women are, increasingly, going to be the key earners and the responsible partners. Women have different challenges from men that need to be thought out and dealt with by financial professionals.

Your study looks at “The Four Pillars of the New Retirement” that make a good life.  Which did respondents consider the most important?

Financial people will have you believe that what matters most to people are finances. But we found that what matters more are people’s relationships, their health and whether they have a purpose in life. You can be a billionaire and feel miserable; but can have very little financial resources and still have a meaningful, purposeful life.

— Related on ThinkAdvisor: