Odds are that your clients and prospects own a 401(k), IRA plan or participate in an employer provided pension plan. Why else would 68% of Boomers and 77% of Gen X and Y generation adults expect that the biggest source of their retirement income will come from their employer sponsored pension, 401(k) or their personal IRAs? (Pew Research Center Report ? December 8, 2005). And my guess (based on the same survey) is that the vast majority of those 40 and older are planning to use up every last penny as they wend their way towards life?s end because less than a third (27%) believe that it is their responsibility to pass an inheritance onto their heirs.
If an American today retires at age 65, they have an eighteen year life expectation. This means that fifty percent are likely to live beyond age 83. In order to generate $1,000 of retirement income for 216 months (12 x 18 = 216) our 65-year old would need to have about $133,000 earning 6% after taxes. In month 217 there would be no remaining principal so hopefully our retiree is lucky enough to be in the first half of 77 million Baby Boomers that run out of money the exact day they move onto the nether world. When Gen X & Y adults make it to retirement their life expectation is likely to be even longer.
Other surveys indicate that most Boomers don?t expect their lifestyle or spending to diminish when they retire. So let?s say that our client decides that they can live on $5,000 per month when they reach age 65. Carrying the previous example forward our retiree would need to have $665,000 chugging away at 6% after taxes just to keep them going until age 83. This plan again, would exhaust both principal and interest.
Ooops I forgot to mention one other nagging bit of information. $5,000 tomorrow won?t be what it is worth today. At a 3% rate iof nflation $5,000 will only be worth about $3,000 in 18 years (age 83). So even if our 65 year old, who expects to maintain their lifestyle after retirement, earns 6% after taxes (twice the rate of inflation) and plans to run out the clock exactly on his/her 83rd birthday they are still likely to live a number of years past their money.
So is this what Dennis Hopper is talking about in those commercials where he exhorts us to live life on our own terms? This plan doesn?t leave a lot of room for error or living past your 83rd birthday for that matter.
Need I ask the obvious question? What happens to this financial plan in the case of an emergency? Say the plumbing needs to be fixed or the family dog needs open heart surgery. Where will the money come from? And since 30% of our future retirees mistakenly think they already have long-term care insurance (AARP) and the other 70% think they?ll never need long-term care (my statistic) then why bother protecting your nest egg? After all, why worry about a $14,000 per month (5% inflation adjusted to age 83) long-term care event that won?t happen to me, particularly when I plan to die the day before all of my retirement money runs out?
If an insurance or financial planner thinks that their work is done when they place their client on a hypothetical trip towards retirement nirvana they are wrong! They haven?t even done half the job. Presuming that they can properly guide their clients through the ups and downs of investment savings and planning the wealth that they?ve helped them create is at mortal risk because if either spouse has a long-term care event (very likely) their monthly retirement income will be devoured. Next goes investments that are throwing off income and finally the home, where everyone wishes to receive care, is at risk. Then they (and their dog) can move in with their Gen X or Y children! God forbid they should live past age 83! For half of us that?s when the real fun begins!
Long-term care insurance is the NOW insurance product for the ME GENERATION! Add an (L)to your client?s 401(k) plan and a LTC to their IRA to make sure that the engine of wealth they are building today is protected against the nearly inevitable long-term care event of tomorrow.