Advisers can use cutting-edge planning solutions to help seniors
and their families avoid financial hardships.
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.
https://www.investmentnews.com/article/20191205/BLOG09/191209959
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