People’s insurance needs evolve over their lifetimes, and an insurance agent who understands these changes is poised to be a relevant and effective advisor. In particular, it is increasingly important that agents have a clear understanding of Longevity Risk, the risk of a retiree outliving their assets, as well as possible solutions to address it.
Longer Life Expectancies
Average life expectancies are now 4 years more than they were in 1990, and, with continued advances in medical technology and healthy lifestyle initiatives, it is reasonable to believe that life expectancies will continue to increase. While a longer life means more time spent with family and friends, it also means more years of retirement to finance.
Complicating this scenario is the fact that we do not know exactly what life expectancies will be in 30 years. A client who is in his or her 40’s or 50’s now may want to plan for a longer life than current life expectancy data indicates due to the rapid progress made in health technologies. Insurance agents play a role in this financial planning by understanding the risks that their clients face and, where appropriate, offering policies that allow for increased financial flexibility (i.e. life insurance plans such as Indexed Universal Life which allow policyholders to borrow from their policy)*.
Health Care Expenses
Along with this rapid progress in health, technologies comes additional cost. Prices for health care have been increasing and are expected to continue to rise. The increase in health costs combined with longer life expectancies may cause financial difficulties for which clients are unprepared. Fortunately, insurance agents can take this opportunity to educate their clients and offer them options to help pay for some of these later-life health costs (for example, a chronic illness rider** or long-term care insurance***).
Standard of Living Concerns
Clients should consider their retirement plans early on so that they can build an adequate savings. If working later into life is not an option, individuals should focus on saving a sufficient amount to meet their retirement goals. If travel or other costly hobbies are a part of clients’ retirement plans, these expenses should be accounted for in a savings plan.
In addition, clients should include insurance early in their financial planning process to protect against uncertainties such as chronic illness or the death of a spouse. Early insurance planning also has the benefit of providing more favorable rates and options.
Post Retirement Financial Performance
Although many people imagine that their money management efforts end with retirement, when they begin to withdraw more than they save, this should not be the case. Tax policies**** and savings plan regulations can have a large impact on post-retirement financial performance, and wise choices in the years following retirement can impact the quality of life during retirement as well as the condition of the estate following death. Retirees may want to consider maintaining a diversified financial portfolio for as long as possible. This will allow continued asset growth, and can also help with minimizing the tax**** burden if performed in consultation with a qualified financial professional.
For more information on counseling clients regarding retirement finances, as well as Simplicity Life’s training and marketing programs for agents, please contact us at 800.921.3100.
* Loans will reduce your cash value benefit and death benefit and may be subject to surrender charges. Unpaid loans are subject to ordinary income tax and, if taken before age 59 1/2, may result in a federal tax penalty.
** The chronic illness rider may be available at an additional cost.
*** Product and features may differ depending on the state of issuance and may not be available in all states.
**** This blog is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not intended to provide specific legal or tax advice and cannot be used to avoid penalties or to promote, market, or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.