Advisers can use cutting-edge planning solutions to help
seniors and their families avoid financial hardships
Dec 5, 2019 @ 3:16 pm By Tom
Burmeister
Our golden years should be filled
with happiness and leisure, not anxiety and financial hardship. Sadly, the
number of elderly Americans filing for bankruptcy relief has increased
dramatically over the past three decades.
More than one-tenth (12%) of U.S.
bankruptcy filings today involve senior citizens, compared to just 2% in 1991,
according to academic research based on Consumer Bankruptcy Project data.
There are many reasons for this
alarming rise in elderly bankruptcies, including the shift from pensions to
defined-contribution 401(k) plans, longer lifespans, higher health care expenses, and poor spending and saving
habits.
Financial advisers can play a vital
role in helping clients avoid excessive debt in retirement. By utilizing
best-in-class financial planning tools, advisers can work with clients to
create detailed plans for achieving financial security well into their 90s.
Helping seniors pay
down debt
Not only are more Americans than ever
before retiring with debt, but the amount of debt seniors are saddled with in
retirement continues to increase.
The Survey of Consumer Finances found
that the portion of households headed by adults aged 65 and older with debt
rose from 41.5% in 1992 to 51.9% in 2010 and reached 60% in 2016. Furthermore,
the median debt for these households was $31,300 in 2016, more than twice their
median debt in 2001 ($12,250).
Advisers can confer with clients to
establish plans for paying off their debt before and after retirement. For
example, working to fully pay down credit card debt with the card with the
highest interest rate first is a wise strategy, and advisers can work with
clients to improve saving and spending habits in order to reach that goal.
Making sense of
government benefits
Too often, people approaching
retirement assume Social Security and other government benefits will
cover more expenses than they actually do or miscalculate how much benefit income
they will be able to keep after taxes.
During financial planning
discussions, advisers can seize the opportunity to help clients calculate how
much Social Security and other benefit income they can expect in their
circumstances after taxes — and incorporate that information into detailed
plans outlining what steps can be taken to make up for less income from
benefits as needed.
In addition, advisers can educate
clients about various Medicare supplement plans that may cover
out-of-pocket health care costs during retirement, and account for how these
supplement plans could shoulder some expenses for retirees.
Focus on retirement
cash flow
To give clients a better idea of how
much income they would need in retirement to meet expenses, advisers can use modern financial planning applications to
craft plans which focus on cash flow during retirement.
These types of plans can
comprehensively demonstrate in various lifespan scenarios how much cash flow
would be needed to meet all expenses and purchase goals throughout retirement
at any age — and also take into account costs for long-term care at home or in
a nursing home/assisted living facility.
Furthermore, advisers can use
planning scenarios to show clients who are indebted as they near retirement
what steps they can take to strategically increase and manage cash flow.
For example, clients may want to
delay collecting Social Security until age 70 in order to obtain the maximum
benefit. But if they plan to retire at 62 or another age before 70, and will
have debt when they retire, it may be better for them to begin collecting
Social Security earlier to avoid cash flow shortages at the beginning of
retirement.
The sandwich
generation
Cash-flow-focused financial plans can
also assist the ever-expanding "sandwich generation" of middle-aged
Americans who are supporting elderly parents and adult children.
The Pew Research Center found
approximately one out of seven middle-aged Americans is providing financial
support to a child as well as an aging parent — and nearly half (48%) of
Americans between ages 40 and 59 provide financial support for a child over 18.
Advisers can work with these clients
to create financial plans that take into account how much cash flow they will
need in retirement in order to care for not only themselves, but also their
children and parents, over the long term. Since personal family
circumstances differ from client to client, advisers should demonstrate various
scenarios to show clients what measures they can take to ensure they have
sufficient cash flow in retirement to meet their own needs as well as those of
other family members they expect to support.
The increase in bankruptcy filings by
the elderly in our country is indeed alarming, but advisers can harness the
power of cutting-edge planning solutions to help senior citizens and their
families avoid financial hardships down the road.
Tom Burmeister is vice president of
financial planning for Advicent, a financial planning technology provider.
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