Tackling 2 top retirement issues: What clients need to know

There are two challenges that must be considered to build a successful retirement for your prospects and clients: (1) increasing longevity and (2) increasing costs.

First, we must plan for increasing longevity. If your clients know for certain they will retire at age 65 and die at age 70, then planning for retirement is easy. But clients could retire at age 65 and live to age 95 or beyond.

That's a different endeavor to plan for. Retirees must find a way to guarantee income during retirement without experiencing losses, and this must be achieved in a volatile investment climate that also provides zero or even negative interest rates for long periods of time.

Rising life exptectancies

With Americans living longer than ever before, the longevity issue will also weigh on the fundamental programs that people over age 65 rely on as a safety net for income and health care. Among them:

Social Security

When Social Security began in 1925, the life expectancy of an American was 62 years. The creators of the program never conceived that Social Security would pay benefits for 20 or 30 years or more. There are not enough people paying into Social Security to support those who are receiving benefits.

Medicare

When Medicare began in 1965, the life expectancy of an American was 70 years. The designers of the program did not realize that providing access to the quality healthcare that Medicare provides would continue to lengthen life spans, but it did.

Medicare also continued to increase in cost. As a result, entitlements, defense and interest on the debt will consume all federal revenues by 2019. By 2023, federal revenues will only be enough for entitlements and interest on the debt.

We will need to make adjustments to these programs soon. And you should make sure that your clients are prepared and ready.

Rising pre- and post-retirement costs

Second, we must plan for increasing costs both before and after retirement, particularly health care costs.

Before retirement

Rising health care costs could delay or prevent prospects and clients from retiring, as these costs devour money to set aside for retirement. The Milliman Medical Index began issuing survey results on the average cost of health care for U.S households in 2001.

Last year, average health care cost for a family of four was $24,671. The results this year show an increase to almost $26,000. The study also shows that health care costs have tripled since 2001.

If costs triple again over the next fifteen years, they would rise to $78,000 annually. That would make access to quality healthcare difficult or impossible for most Americans.

After retirement

Rising health care costs will eat through retirement savings at a much faster rate. According to HealthView Services, a couple retiring in 10 years can expect to use 100 percent of Social Security to pay for healthcare costs. A couple retiring 20 years from now will require 127 percent.

Your first question after sharing this information with clients and prospects should be, "Where will you find income to pay for your other needs, like food, clothing and shelter?"

Remember, The Wall Street Journal has reported that Americans pay more in healthcare costs during the last three years of their lives than during all the rest of their lives combined.

Use this information to show all the grandmas and grandpas how and why they should leverage their money using life insurance. We must do this for our prospects and clients or most Americans will face bleak retirements.

You have the knowledge to really make a difference.

Read also these columns by Van Mueller:

What women planning for retirement want: income guarantees

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