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Retirement Planning > Spending in Retirement > Lifestyle Planning

Frailty Risk: The Retirement Reality Your Clients Don't Want to Talk About

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What You Need to Know

  • An estimated 7% to 12% of Americans age 65 and older are considered frail, and the risk rises dramatically with age.
  • Advisors are in a key position to bring discussions about frailty risk and lifestyle planning to the fore.
  • Arranging power of attorney documents and estate plans in advance, while emotionally difficult, can offer crucial peace of mind to aging clients.

As a senior advisor at Retirement Planners of America, Ken Moraif spends a great deal of time collaborating with clients approaching or navigating retirement.

As Moraif told ThinkAdvisor during a recent interview, RPA is a somewhat unique firm in that it is highly selective when choosing clients. Not only does the firm zero in on near-retirees and retirees, it also works with clients who can appreciate the firm’s highly defensive investment philosophy, which Moraif refers to as an “invest and protect” strategy.

Beyond its investment philosophy, Moraif says, RPA also stands out for its honest confrontation of other risks not directly related to the equity and bond markets. For example, Moraif says, the firm has been doing a lot of work to help clients understand and mitigate the basic biological risks that come along with aging, which can be collectively summarized as “frailty risk.”

In addition to addressing the topic during his interview with ThinkAdvisor, Moraif expanded at length on the theme of confronting frailty risk during the latest episode of his podcast, Money Matters. According to Moraif, advisors are in a powerful position to help their clients face this uncomfortable but inevitable part of the investment and financial planning process.

Facing Frailty Risk

Frailty risk, Moraif says, “is the set of risks that fall under the category of things our clients don’t like to think or talk about, but which they should think and talk about.

“Confronting frailty risk is about facing some of the scary realities of retirement and getting some tough things taken care of — if only so that the client doesn’t have to keep dwelling on them,” he adds.

Naturally, the main elements of frailty risk derive from a client’s deteriorating mental or physical health. According to data from John Hopkins, an estimated 7% to 12% of Americans age 65 and older are considered frail, and the risk rises with age — from one in 25 people between ages 65 and 74 to one in four of those older than age 84.

While each client’s future health outlook is unique, Moraif says, there are some common threads and planning steps that are likely to be helpful to all. Importantly, planning for these risks is not just about confronting the prospect of sudden and total debilitation, which is what a lot of people think about when they first hear the term “frailty risk.”

“In reality, this is a lot more complicated,” Moraif says. “Imagine there is a client who owns a big home, for example, and over time they find they can’t continue to take care of the yard — or they can’t find someone to help with the household chores without having to pay them an exorbitant amount. How can we plan for that?”

Perhaps it’s nothing to do with the house. Maybe the individual has a manageable home, but they live in an area where they have to drive long distances to do anything, and they have lost the ability to drive safely due to an otherwise manageable health issue. In such cases, Moraif says, it may be worth considering whether downsizing or relocating is a good idea. Ideally, a client will be able to make adjustments early that minimize lifestyle disruptions for themselves or their future caretakers.

Moraif emphasizes that advisors aren’t going to have simple answers to these challenges. However, an advisor can play a critical role by helping clients and their families start care-oriented discussions well in advance, in preparation for any crises that arise.

Estate Planning, POA & Other Considerations

“What are some solutions that bring peace of mind? First of all, making sure a client knows who they want to have step in and help them in advance is crucial,” Moraif says. “The advisor can help to prompt these discussions about who the client is going to trust to have control.”

In terms of specific steps and documentation, Moraif says, getting power of attorney documents in place is a great place to start. While they are not going to replace a proper estate planning attorney, the advisor can come to the table with at least a base level of expertise about the different power of attorney documents and how each can be used to its best effect.

“For example, there are important differences between normal power of attorney documents and durable power of attorney documents,” Moraif says. “In my experience, getting all of this arranged in advance is critical and it can avoid a lot of hardship and suffering. If you wait, and you don’t figure this out in advance, it can be so challenging to do so when a person becomes disabled or debilitated.”

Sadly, Moraif says, clients who are ill-prepared can see situations in which their family members have to go to a competency court and go through a potentially intrusive hearing process through which someone is eventually declared as competent to be a guardian.

“It may not end up being the person the client wanted, frankly,” Moraif warns.

Another step is to take steps to simplify the client’s finances in advance.

“A lot of the time, when a client first comes to us, they have a junk drawer of investments and accounts generated over their lifetime,” Moraif says. “They might have a few retirement accounts over here, a discretionary investment account over here, and their inherited wealth over there. It’s difficult for someone to come in and understand what is going on if you have  too many accounts.”

Short of making moves to consolidate assets, the advisor and the client can at least work together to create a map of the person’s wealth, with clear instructions on how to access key accounts and holdings. Clearly, Moraif says, trying to figure this stuff out in the immediate wake of a dramatic health event or some other disruptive issue will be emotionally and practically challenging for all involved.

Building Loyalty With Clients and Their Children

Moraif says it is all too easy for clients to put off this kind of planning; nobody wants to honestly face and consider their own mortality. As such, it is critical for the advisor to play the role of a circuit breaker and delicately but firmly bring it to the fore.

“What we see resonate with clients is helping them to understand how much pain and suffering this process can cause for their family,” he says. “Yes, it is scary for the client, but they have to put themselves in the family members’ shoes. That’s what motivates clients to plan for this in advance.”

According to Moraif, engaging in this type of planning is one of the best ways an advisor can get to know the next generation of their client’s family. Over time, the advisor can encourage their client to think about who they are likeliest to lean on for support, and these individuals can be brought into planning conversations.

Also critical, not everyone who is expected to be a caregiver in the future will want or be able to do so, and this is all best spelled out before a crisis.

“Our practice is focused on the retirees, yes, but we also know that practically all of our clients have families they are taking care of,” Moraif says. “Many of our clients have ambitious plans to leave a legacy behind, and this is one of the ways we can work to make sure our planning relationships continue from generation to generation.”

In Moraif’s experience, advisors who are not proactively getting to know their client’s heirs and including them in this type of planning are in fact building “anti-loyalty,” and the chances of the child staying with that firm after an inheritance event occurs are basically zero.

With so much wealth set to transfer from the older generations to members of Gen X and millennials, Moraif says, it is paramount that advisors get to work on these issues. Otherwise, what looks like a robust book of business today could start to dry up faster than many advisors would ever anticipate.

(Image: Shutterstock)


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