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Neither Clients Nor FAs Are Prepared for Longevity Risk

June 22, 2018

Investors and financial advisors alike are not paying enough attention to the possibility of running out of retirement funds as a result of an unexpectedly longer life and the potentially high cost of long-term care that comes with it, according to a recent survey cited by WealthManagement.com.

Around 60% of advisors say fewer than one in four of their clients have a long-term care plan; 22% say that 25% to 50% of their clients have one; and only 1% say that more than 75% of their clients do, according to a survey of 150 advisors by Key Private Bank cited by the web publication. But 12% of advisors admit to not even knowing whether their clients have one or not, the survey found, according to WealthManagement.com.

Communication and education seem to be at the root of the problem, according to Key Private Bank, the web publication writes. Seventy-seven percent of advisors say only “some” or “hardly any” of their clients have talked to their families about their long-term care wishes — and that’s while 96% of clients want to stay independent and at their home in their twilight years, according to the survey cited by WealthManagement.com.

The biggest difficulty advisors encounter in ensuring their clients are prepared for long-term care costs is convincing them to have a plan before they actually need it, cited by 52% of respondents as the most common hurdle, Key Private Bank found. Forty-four percent of advisors say the biggest difficulty is allocating savings toward long-term care costs without it impacting other financial goals, and 38% say they have trouble forecasting what the clients will require in caregiving as well as touching on coordinating that care, according to the survey.

An alliance of 24 financial firms that includes AIG, Jackson, Lincoln Financial, Prudential and TIAA, meanwhile, aims to deliver insurance-based solutions to address longevity risk, according to the web publication. The alliance has formed a non-profit to educate consumers and advisors on the risk, WealthManagement.com writes.

By Alex Padalka
  • To read the Wealth Management article cited in this story, click here.