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Senior Retirement Concerns – Know Your Clients
This article is about the concerns that pre-retirees and retirees have about retirement.
The biggest concern among many people aged 45 to 65 is maintaining their current standard of living.
Pre-retirees are often concerned about:
- does not maintain the current standard of living,
- health care/prescription costs,
- availability of Social Security,
- surviving estate,
- inflation of the US dollar,
- market conditions / performance during retirement,
- leaving inheritance to children/heirs,
- the impact of income tax,
- pay for children’s education, and
- care for elderly parents.
Unlike previous generations, nearly 20 percent of American pre-retirees expect to continue working in retirement in order to supplement their retirement income or provide reasonable insurance coverage.
Lack of a plan
Only half (51 percent) of pre-retirees have completed a detailed retirement income plan according to some studies. Some reports indicate that 31 percent of those born between 1925 and 1945 do not have a retirement plan. Among those born between 1946 and 1955, 42 percent lack a retirement income plan. The number is even higher at 53 percent for those born between 1956 and 1964.
Pre-retirees are willing to make other sacrifices to have the kind of retirement they want, including delaying retirement, saving more and continuing to work while in retirement.
Rising health care costs
Rising health care costs concern everyone and can potentially consume the largest portion of retirement income. But Medicare only covers a percentage of medical bills and prescriptions for all Americans, so your customers’ out-of-pocket costs are likely to be large and increase in retirement.
Facts: A couple retiring today at age 65 needs an estimated $197,000 in savings to pay for their lifetime health care costs — $260,000 if you include nursing home costs, according to the 2010 study conducted by the Center for Retirement Research at Boston College.
Then there is the impact of taxes and inflation on retirees living on fixed incomes. When you look at the last 65 years, today’s highest and lowest marginal tax rates are comparatively low. Increased government spending on health care and other initiatives, combined with rising deficits, could mean a greater likelihood that rates will move higher in the coming years.
Inflation may still be historically low today. In the wake of the Great Recession, the cost of living for even the most basic needs—food, housing, utilities—is likely to rise. When you work, your wages usually rise as consumer prices rise, so inflation is usually not a big concern. That all changes in retirement. When you’re living off your retirement savings, inflation presents itself as a significant risk. For many people in the critical years just before or after retirement, inflation can make things that have been staples to your lifestyle seem like luxuries.
Some retirees are forced to choose between paying utility bills and meeting their health care needs. And even though Social Security and some pension programs adjust income for inflation, the money withdrawn from your retirement savings to cover living expenses is greatly devalued by inflation.
The good old days may not have been
If you think it was financially hard on seniors in recent years, it was nothing compared to the drought after the Great Depression in 1934. More than half of all seniors then lived in poverty and often went hungry. .
In 1935, our government came to their rescue and adopted Social Security. In the beginning, Social Security was a one-time lump sum payment instead of the monthly lifetime check of today. The first Social Security recipient worked a day and got paid a nickel; he withdrew the next day and returned 17 cents.
The first person to receive monthly payments for life was Ida Mae Fuller, who began collecting benefits on January 31, 1940, her 65th birthday. Ida Mae had paid Social Security a total of $24.75 and her first Social Security check was $22.54. He lived until he was 100 years old.
During his lifetime, he collected $22,888.92; it was a good annuity investment for her.
Also, the workforce has changed. In the 1940s there were 42 workers for every retiree. During the baby boomer generation of the 1950s, the ratio had fallen to 16 to 1 and as of 2010, there are fewer than three workers per pension recipient.
Uncertainty creates unique opportunities for you to inform and educate your clients and prospects about tax-advantaged solutions for their retirement planning. Monthly lifetime income is more desired by baby boomers than wealth accumulation. Having an institution like a bank or an insurance company standing in the gap between financial success and failure is paramount.
Just ask your best prospects how they feel about their future monthly income. Today Social Security is in a precarious position. Without immediate changes, it will not be able to pay the benefits promised to retirees.
It’s not a political problem, but a math problem. In 1935, when Social Security began taking over the FICA net, the average life expectancy for a man was 60 years and 64 for a woman. Yet Social Security payments do not begin until age 65. Today life expectancy is closer to age 83, but Social Security begins at age 67 at the latest later on.
Life insurance illustrations are performed until the age of 120. Perhaps our role is to educate our elderly customers, not to sell a product.
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