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To the degree that people reach old age mentally sharp, physically fit, and financially secure, the problems of individual and societal aging fall away.”
— Laura L. Carstensen, Founding Director
Stanford Center on Longevity
According to a Stanford study on planning for retirement at a time when we’re living longer than ever before, confidence in the ability to retire comfortably — or even to retire at all — is at a new low. Pitfalls include:
- Failing to plan for retirement
- Underestimating expenses
- Underestimating the number of years they will be retired
- Retiring too early
- Failing to save
The biggest challenge is failing to plan for retirement at all, researchers say. Only a third of adults in their 50s have ever tried to devise a retirement plan…and only two-thirds of those who have tried have succeeded.
Even among those who do save, fear of limited resources tops the list of retirement concerns. According to a Bank of America Merrill Lynch 2013 Workplace Benefits Report, in a nationwide survey of more than 1000 employees from companies of all sizes:
- 80% experienced an increase in health care costs in last two years (this may change under the Affordable Care Act)
- 56% are saving less for retirement as a result
- 85% feel they’re not saving enough
- 60% believe it will be “very difficult” to ever save enough to support their standard of living once they retire
- 79% would give up 5% or more of their salary if it meant having reliable income to help them live comfortably during their later years (38% would give up 10% of their salary — or more).
Though neither research report mentions reverse mortgage as a viable option for older adults once they reach retirement age, given the monetary concerns now facing those in late middle age or nearing retirement, this group appears to be a ripe market to consider the possibility, assuming someone owns a home with sufficient equity to qualify.
Yet continuing to earn isn’t the only reason for seniors to postpone retirement, says U.S. News & World Report, which suggests there are a number of good reasons to retire the idea of retirement for a while yet, such as:
- Enjoying one’s job. While boss-bashing makes for humorous cartoons and water cooler conversation, people who love what they do need not retire just because they reach a certain age. Boomers, especially, are aging (and perceive aging) much differently than previous generations. A professional hair stylist, for example, is still booked months ahead because she takes time off to travel. At 67, she has no plans to retire anytime soon.
- Improved health. Contrary to popular belief, working longer may actually enhance later life health: one study of nearly half a million French workers found that every additional year of work before retirement lowered the risk of dementia 3.2 percent.
- Marital accord. Women have long maintained that once their husbands retire they’re underfoot all day and at loose ends, which can wreak havoc on a marriage. The longer at least one partner continues working, the better it may be for marital harmony. The extra income is a bonus.
By balancing data on the necessity of planning for retirement with the positives about continuing to work, you can present a more informed picture to potential reverse mortgage prospects to help them make the best possible decision for a secure future in the age of longevity.
10 Comments
Wow! Everyone needs to read and understand this…and I do mean everyone.
Thank you, Frank! Spread the word…
Amara,
You made some good points in your latest article.
I had an interesting meeting with a Certified Financial Planner who discussed long-term planning for future for retirement. One issue is what he calls “The fear factor” which simply means having enough money to meet future needs. Part of the problem is that people of moderate means are afraid to spend down during their active years out of the fear of not having sufficient money to meet their later years’ needs. Proper investment planning, which he does, is to show how to continue to earn while spending now – not overdoing it, but staying within your means and lifestyle. The approach is that you need to enjoy what you worked so hard for as you age and while you are able, and realize that for most of us, our financial needs will be less when we grow old, when we may be less active. It doesn’t make sense to accumulate and have a pile of gold just to leave to your heirs.
In meeting with Reverse Mortgage clients, we often hear people say their reluctance to remortgage their home is because they want to leave something to their adult children. Once through honest discussion and evaluation, they realize their children are grown and have their own families and jobs now and are self-sufficient, it is time for them to create their own financial safety net. As I have often said, not everyone wants or needs a Reverse Mortgage loan but its sure nice to have that possibility should you ever need it some day.
This goes back to HECM loans more and more becoming a financial planning tool for Financial Advisors. It has long been a big hurdle educating Financial Planners and accountants in what this type of product can do to help them help some of their clients.
Keep up the good work and have fun doing it.
Mr. Diamond,
Two issues with the observations of the CFP. First he is most likely dealing with a higher level of income client than we do as HECM customers. Second he is not in the later years of life and by what he says has few clients who are.
I have had several tax clients who were in their 80s and they are very active. One created a garden fertilizer in his late seventies which he refused to sell to Ortho and grew his business throughout his 80s into a business providing over $1,000,000 per year in net profits. Another was an engineer who created several specialized and patented cement and related products in his late 60s. He has been so successful that several of his products are common home improvement products both at Lowe’s and Home Improvement. Another was a fabric remnants dealer who lived on the edge of a golf course in an upper income community near UCLA. All three men were brilliant and sacrificed in their early senior years only to reap huge rewards later in retirement. One of these gentlemen has traveled the world several times meeting with world leaders throughout his career and now through adult travel offerings from UCLA for those in their retirement years.
I also provided tax services to a number of union and former union leaders. Unfortunately they had to retire from what they loved in their early senior years. Despite relatively great retirement benefits including medical, their expenses rose in later years in comparison to their earlier years of retirement. Most used the standard your CFP advised and suffered accordingly.
When the decumulation phase of financial planning should begin is a matter of facts and circumstances. Yes, wealthier seniors can start much earlier than those of more modest means. But those who are of more modest means are well advised to keep working and enjoy their longevity actively rather than retiring under some idea of conventional wisdom. Those I have known who are been successful through their work, rarely slow down at 65 unless they are forced out of their positions.
Hi Dick,
Thanks as always for your thoughtful comment. Education is the key to success in every field of endeavor, and collaboration is an ideal form of service. I’m sure your clients love you, and I hope you’re giving lots of educational presentations to financial planners and other groups who work with seniors!
Amara,
This is the type of information which is useful in our meetings with seniors. I am not sure how all of it helps in creating more originations but there is much in this field that is exactly that way.
In my limited experience, the three bullet points ring very true. For most seniors, the vision they have about retirement is either dreamy or a black hole. Retirement planning is only done by the few and when done most of the time it is done either with quixotic expectations about the future or with a healthy dose of pessimism.
So even if two-ninths of all seniors have done successful retirement planning, so many of those plans are either so gloomy or “sunny” that the plans have little practical application. Having a CFP work with the senior in creating the plan usually makes the plan far more practical.
Mr. Veale,
I think you make some very valid points, and one of them is that everyone’s needs and circumstances are special to them as individuals. I do agree that many do not welcome retirement at an early age such as 65, whereas others are ready to stop working for financial gain and enjoy other pursuits. Smart financial planning is a must for all of us if we hope to enjoy our remaining years.
Mr. Diamond,
“Smart” retirement planning alone did not prevent the ravages and financial ruin of the equity trading devastation of either 2000 or 2008 in which so many seniors saw their bright retirement futures turn to mush. Financial advisors experienced many of their existing clients leaving their firms in disgust and worry; new clients came because they saw a need for some oversight when it came to planning their futures. It is those downturns in business which drove many financial advisors to become CFPs.
Whether seniors are looking to retire early or putting it off, economic upheavals can change what seniors are actually able to accomplish despite their best intentions, desires, and goals.
“We make our Plans, and Life Happens.”
Nothing in life is 100% guaranteed, but we can help ourselves enjoy better lives by taking good care of ourselves physically and making an effort to live within our means and by doing the best we can in planning for the future. We should all be advising our clients to have a Will, Durable Power of Attorney and a Living Will. These small steps can prevent a lot of future heartaches.
Mr. Diamond,
While wills, living wills, and durable POAs are needed, so are living, testamentary, irrevocable life insurance, education, and various other types of trusts. What types of trusts are needed is very much dependent upon the economic position and the goals of the client.