Over the past several years, most financial advisers have spent a lot of time helping clients overcome their fears about the markets.
They have addressed many diverse money woes in clients' lives as the economy has cycled through ups and downs.
But ultimately, the biggest lingering anxiety with which clients have to contend is the fear that they won't be financially secure in retirement. Perhaps the two most significant obstacles that clients must work to overcome to feel more prepared for this milestone are the risk of running out of money through a longer-than-planned retirement and the burden of health care costs later in life.
These issues may appear to be exclusive, but they are often closely intertwined. Spending savings on unexpected health care costs early on in retirement can take a significant bite out of one's nest egg.
On the other hand, living up to 30 years in retirement typically means spending a good deal on health care costs along the way, and likely increasingly as time goes by.
As an adviser managing the day-to-day tasks within a practice, in addition to taking in a staggering amount of new information on a daily basis, I feel that it is easy to lose focus on what is most important. Advisers should take a minute to remind themselves of the issues that need to be addressed to help ease clients' anxieties as they prepare for retirement.
This information may not be groundbreaking, but too often, these conversations are easy to overlook. Your clients may not ever feel completely at ease about entering retirement, but being upfront about these issues can make an important difference in helping your clients overcome their retirement fears emotionally and financially.
The overwhelming fear for many mass-affluent baby boomers is that they will run out of money while they still have years to live. Helping clients find ways to attain a comfortable lifestyle during retirement that is within their means is crucial to combat this concern.
Here are a few of the planning steps worth reviewing with every client preparing for retirement:
Ensure that required expenses in retirement are accounted for. Because Social Security usually isn't enough to pay for life's necessities, consider supplemental options to help cover essential costs.
Get serious about lifestyle spending choices. Clients who may be living beyond their means are likely to continue that pattern during retirement. Have a frank discussion about the need to control spending and becoming accustomed to a simpler lifestyle that won't exhaust assets too quickly.
Instill diligence when it comes to saving. Advisers are aware of those who must constantly be encouraged to save consistently. Make sure that clients understand and are taking advantage of all of their systematic saving options.
Protecting against extreme health care costs. Many clients presume that Medicare will pay for all their health care costs once they reach 65. But unless there are significant changes to Medicare or the costs of care decrease dramatically, this may not be the case.
Long-term care adds even more costs. Insurance can be expensive, but not having it could be even pricier.
The Employee Benefit Research Institute's latest study estimates that the average couple can expect to spend $261,000 of their own money to achieve a 90% certainty of meeting their health care needs during retirement.
Here are three fundamental issues to help clients address health care cost worries:
Include medical premiums in a retirement budget. Clients need to be prepared to pay for insurance premiums once they reach 65. If they retire earlier than that, the costs of health insurance may be even greater while they wait for Medicare to kick in. Work with clients to develop an estimate of what they might spend on out-of-pocket health care costs.
Look into a health savings account. Money accumulated in an HSA can be used to pay out-of-pocket costs and premiums for Medicare Parts B and D, and supplemental insurance once individuals reach 65. Clients can use HSA funds at any age to pay for LTC insurance premiums.
Consider LTC coverage. There is a growing list of ways to prepare for the expenses associated with long-term care. Too many avoid this issue, but given the likelihood that many boomers will live to their 80s, 90s and beyond, funding it should be a crucial part of any comprehensive retirement plan.
Craig Brimhall is vice president of retirement wealth strategies at Ameriprise Financial Inc.