Investment Advisor Interests  01/18/2018 NAPA RSS Icon

Do Not Let Expenses Affect Your Clients in Retirement

By Harry J. Lew

Ever get frustrated when an unexpected bill arrives while you’re paying your monthly bills? Then imagine how you’ll feel if you’re always over budget during retirement because you failed to accurately anticipate your basic living expenses, not to mention your health care and long-term care costs.

Do Not Let Expenses Affect Your Clients in Retirement

That’s exactly the picture a new LIMRA study paints. According to the association’s Secure Retirement Institute, 26 percent of retirees reported their basic living expenses during retirement were higher than their pre-retirement estimates. What’s more, another 40 percent of retirees failed to accurately predict their retirement health care and long-term care costs.

What’s the problem with fudging one’s expense projections? Simply that having more expenses than expected takes a toll on people’s retirement confidence. “Our study found retirees whose basic living expenses or health and long-term care expenses are higher than anticipated generally express lower confidence in their ability to live the retirement lifestyle they want,” said Matthew Drinkwater, PhD., assistant vice president, LIMRA Secure Retirement Institute.

Specifically, the study found that 60 percent of retirees who said their basic living expenses were higher than expected lacked confidence in their ability to achieve their retirement dreams. Similarly, 32 percent of retirees who messed up their health care and long-term care projections highly doubted they’d be able to realize their desired retirement lifestyle.

LIMRA also discovered that women are 50 percent more likely than men to say their basic living expenses are somewhat or significantly higher than expected. They also are likely to experience higher than anticipated health and long-term care expenses than men do. The same trend holds for lower-income retirees. According to the LIMRA study, retirees with lower income are substantially more likely than more affluent retirees to be surprised by higher retirement expenses. For example, 35 percent of retirees with incomes between $35,000 and $49,999 say their retirement expenses exceeded their expectations.

Although it may be too late for today’s retirees to get a better handle on their expenses, the study suggests that tomorrow’s retirees have a huge opportunity facing them. They can still engage in effective retirement planning to accurately predict their future expenses. To the degree pre-retirees can avoid the mistakes of their predecessors, they will be better equipped to manage the financial challenges of retirement. Their ability to access retirement planning expertise from a professional advisor will be crucial in this effort, LIMRA says.

For instance, consumers who work with an advisor to develop a retirement plan are more likely to have their actual expenses resemble their anticipated ones. According to the LIMRA study, 69 percent of those with a formal written plan say discretionary expenses are about the same as expected versus 50 percent of retirees without a plan.

For today’s pre-retirees and their advisors, the lesson is clear. The benefits of formal retirement planning are too great to ignore. If consumers wish to enter retirement with the confidence and the resources they need to stay ahead of the game, they need to partner with a financial professional soon to create a retirement income/expense analysis. If you’re looking for sales opportunities for 2018 and beyond, this one should be at the top of your list.


Admin Login