If 100 Is the New 90, Financial Plans Increasingly Risk Failing

Are advisors doing all they can?

(Illustration by RIA Intel)

(Illustration by RIA Intel)

For Larry Ginsburg, the future has already arrived. The Oakland-based principal of Ginsburg Advisors has become well-versed in dealing with centenarian clients. A long-standing client passed away earlier this year at the ripe age of 103, surpassing the age of a past client who died a few years ago at 102. A current client recently turned 101.

Gone are the days when advisors could simply rely on projected lifespans built into financial planning software, typically when a client reached their early 90s. A growing number of advisors are now creating financial plans that keep an asset base in place until at least age 100.

This trend might soon be commonplace. According to Pew Research, there were 451,000 centenarians worldwide in 2015. Around 15% of them resided here in the U.S. By 2050, that global cohort should grow eightfold to 3.6 million.

And today’s aging clients lead very different lifestyles than their parents or grandparents. “As people live longer, they are seeing their health decline more slowly,” says Ginsburg. That means more active lifestyles, including higher spending on travel and other interests.

For clients that aim to retire around age 65, planning for another 35 years can create a new range of challenges for planners. And not all clients will embrace the notion of budgeting for that kind of time frame.

“Some clients will say that they don’t have a history of longevity in their family,” says Diane Pearson, who runs Wexford, PA-based Pearson Financial Planning. Yet she helps them to understand that genetics are just one factor in determining how long they’ll live.

“Even 30 years ago, things like cancer may have been a death sentence,” she says. “Now, even cancer survivors or those that have had heart surgery can go on to live for a long time to come.”

Still, planning for longevity will often lead to a give-and-take with clients. “Some things, such as an early retirement, simply may not be feasible,” says Pearson. Yet she adds that it’s important to ensure that a financial plan dovetails with a client’s goals, and not impose needless austerity on them to make a plan work.

“The question is, how do we make adjustments in the plans that reflect their wishes and hopes,” Pearson says.

When a client stops working, it’s important for them to have an engaging and fulfilling lifestyle. “Early on (in retirement), they won’t always be comfortable spending money, but I stress that it’s important that they remain active and pursue their goals while they still have a lot of mobility,” says Ginsburg.

That approach is in line with what Pearson has seen with her clients. In the first 10 years of retirement, “clients will typically spend 110-120% of their projected budget, compared to when they are working.” Global travel and second homes are just some of the expenses that can pop up once clients have more free time.

Eventually, such spending slows down, says Pearson. So planners need to think about budgeting in the context of various ages, and adjust their financial models accordingly.

Peter Hoglund, a financial advisor with Warren, NJ-based Wealth Enhancement Group, stresses that clients prepare for higher medical and long-term care expenses in extreme old age. He scopes out the costs of three, five or even 10 years’ worth of senior care (whether in home or in a facility), and without proper planning, such events “can be extremely damaging to a portfolio.”

Many clients are wary of purchasing any new insurance later in life, but long-term care insurance can make or break a financial plan. Even though many clients will initially scoff at any consideration of such insurance, it’s important to explain the choices between paid insurance and self-insuring one’s long-term care needs.

“The key question for clients is whether they have a high enough net worth to self-insure, or does buying insurance make more sense,” says Pearson. Ginsburg takes a different view. “I tell clients that by self-insuring, they may imperil the size of the estate that they leave to heirs, at which point they realize that long-term care insurance makes ample sense.”

Ginsburg “used to recommend long-term care insurance policies for clients when they were 70. Then, we began the conversation at 60, and now we’re bringing it up with 50 year-old clients.” Providers of long-term care insurance policies offer far lower premiums for clients that sign up earlier in life, giving the insurers time to build assets against that policy when it comes time to pay out.

Look for long-term care policies to become of greater interest to clients once they start to see the relationship between aging and dementia among their family friends. According to the U.K. chapter of Alzheimers.org, “above the age of 65, a person’s risk of developing Alzheimer’s disease or vascular dementia doubles roughly every 5 years. …dementia affects one in 14 people over 65 and one in six over 80.”

And according to the National Institutes of Health, “rates (of dementia) increased exponentially with age from 12.7% per year in the 90–94-year age group, to 21.2% per year in the 95–99-year age group, to 40.7% per year in the 100+-year age group.”

By then, many clients will be operating under a Power of Attorney, and it’s up to relatives to make key financial planning decisions. As Ginsburg notes, “many clients end up outliving their mental capacity.”

Living deep into old age can lead to unforeseen complications with life insurance policies as well. Barry Flagg, a Chartered Life Underwriter (CLU) with Tampa, FL-based Triangulum Financial, notes that many whole life policies were historically designed to terminate at age 100. While newer policies now expire further into the future, some older clients may unwittingly own insurance policies that will fail them once they cross the century mark.

Policies are often structured for the cash value to equal the death benefit at age 100, at which time the insurer will simply cut a check to the client. The trouble is that’s a taxable event, according to Flagg. He suggests that advisors help clients navigate the maturity extension rider, which can help defer a policy’s payout date to a point well beyond a probable age of death.

Flagg adds that whole life insurance policies are “the last largest neglected asset on client balance sheets. Often times, the original insurance sales agent isn’t even in the picture anymore.”

Even as a fast-growing number of people are living into deep old age, younger clients may come in with a goal of today’s hot new trend: F.I.R.E. (Financial Independence, Retire Early).

For financial planners, this can be a sort of nightmare scenario. Dennis Nolte, who advises clients at Seacoast Bank, says that these young clients “don’t want to ponder longevity. They simply haven’t understood the financial impact of an extremely long retirement.”

In contrast, older clients are already prepared for the “go-go, slow-go, no-go,” runway that they future likely holds. Many of Nolte’s clients appreciate the desire to leave a career that is no longer fulfilling to them, but they’d still rather work an extra few years than potentially face an austere retirement.

What’s the best way to raise the issue of living to 100 with clients? Gingerly, says Ellen Osthus Fee, who runs Edina, MN-based Feathered Paddle Wealth Partners. “If it’s a brand new client, I am looking at their body language as I discuss the merits of planning out to 100.” To help them see the value of the approach, she’ll work through several examples of other clients that greatly benefited from having a long-term plan in place.

To be sure, many clients simply lack the resource base to support a plan that goes to age 100. For plans that exhaust assets before the century mark, Osthus Fee says she prepares alternative scenarios in advance of the plan review meeting. “We help them work through whatever assumptions are needed to make it work,” she says. “I will reduce the life expectancy to show how the plan will work better to a specific age, such as 90.”

The key takeaway here is that planning for age 100 makes ample sense for clients that have enough assets in place but may just create unwanted stress for clients that would be hard-pressed to survive and thrive until 100.

David Sterman, CFP, is President of New Paltz, NY-based Huguenot Financial Planning.

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