Get The Word Out On Retirement Risks
Annuities, health insurance, pensions, long term care insurance, and life insurance can help those in their sunset years to manage the various risks they face (see Chart 1).
Unfortunately, despite the best efforts of some producers, clients often greet products geared toward senior markets with little enthusiasm.
The lukewarm reception can be surmised in part from sales results. For example, although they have been increasing, immediate annuity sales represent only a tiny fraction of total individual annuity sales, according to LIMRAs individual annuity sales survey. The individual LTC insurance market is also far from saturated.
Considering the complexities of 21st century retirement and the two-decade-long shift in responsibility for retirement planning and funding from institutions, this reluctance seems remarkable.
Traditional pensions and employer-sponsored retiree health insurance are on the decline. People are concerned about the future of Social Security. Increasing life expectancies and health care costs only serve to complicate matters. Add to this the risk of a prolonged illness that could require long-term health care.
Without adequate assets or insurance protection, severe illness could decimate a retirees savings and threaten his ability to remain self-supporting, particularly if he survives a serious illness in relatively good health.
Even so, perhaps partly due to the many changes affecting retirement and the financial services industrys emphasis on saving for retirement, little attention has been paid to educating workers about retirement planning. Nor has much attention gone towards developing effective solutions for retirees to help them manage an increasingly complex retirement equation.
Moreover, some people would rather not think about the implications of growing old–nursing homes, the loss of independence, and so on.
As a result, many retirees and people approaching retirement are either unconcerned or unaware of the many risks they face in their retirement years. This needs to change.
LIMRA recently surveyed retirees and pre-retirees about their retirement planning, financial situation in retirement, and level of concern towards and preparedness of retirement risks. Surveys were sent to retirees between ages 55 and 78 and pre-retirees (defined as individuals planning to retire within the next two years) aged 50 to 70.
Among retirees and pre-retirees alike, there was a distinct pattern in their levels of concern about these risks.
They were most concerned about health-related risks, followed by financial risks, with mortality-related and other risks being of least concern. Chart 2 shows the percentage of retirees and pre-retirees who labeled as "a major concern" the risks that could impact their standard of living
Clearly, increasing health care costs and prescription drug costs remain front-of-mind. This may have been helped by the most recent presidential campaign, which made these pivotal issues.
The facts are these: Nearly all retirees and pre-retirees surveyed have some source of health insurance coverage. Medicare covers four in five retirees and three in five pre-retirees have coverage with their current employer.
Yet, just one-quarter of retirees and one-sixth of pre-retirees claim to own LTC insurance (figures we believe to be overstated due to confusion and lack of understanding about this insurance).
Cost is the major reason given for non-ownership of LTC insurance. However, other research, conducted by LIMRA and the Health Insurance Association of America, shows that people typically grossly over-estimate what LTC insurance costs. Some claim they dont or wont need LTC. Many (incorrectly) believe Medicare will pay for it. Others believe they have enough assets to get them through any type of LTC they might need, and still others claim they dont know enough about it.
As for financial risks, Chart 2 shows tax increases are of slightly higher concern among retirees than pre-retirees, even though many retirees will likely end up not needing to pay them. Tax avoidance (legally, of course) is often the topic of seminars aimed at retirees. Those saying they have taken tax increases into account in their planning are more likely to have formal, written financial plans and have more assets.
Many older people living on fixed incomes have experienced first-hand the impact of even modest inflation over an extended time period.
