Mary Beth Franklin

Retirement 2.0blog

Mary Beth Franklin on what your clients really want when they talk about retirement.

Longevity may alter financial planning

Longer lifespans create multiple goals beyond retirement

Jun 1, 2016 @ 12:29 pm

By Mary Beth Franklin

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Longevity is a hot topic among financial services firms. Based on the fact that people are living about 30 years longer on average than they did a century ago, several major companies have teamed up with leading research institutions to figure out what these added years may mean for financial planning.

A few months ago, I reported on the latest installment of a multi-year study by Bank of America Merrill Lynch and Age Wave on the impact of longer lives on various aspects of retirement living including health, home, family, giving, leisure, work and finances. In my article, “Longevity can be an asset in retirement,” I discussed how an increased pool of retirees could be a boon for charities and nonprofit organizations in the future if older Americans continue to donate their time and money to their favorite causes at their current rate.

Although Americans age 65 represent just 31% of today's population, they account for 42% of charitable contributions and 45% of volunteer hours today, according to the Merrill Lynch/Age Wave study. Over the next 20 years, the number of Americans 65 and older is expected to increase by more than 50%.

But a new report from Allianz Life Insurance of North America questions whether those added decades should be tacked on to the end of life and categorized as a longer retirement or whether that gift of time could alter the traditional school-work-marriage-kids-retirement timeline.

Partnering with the Stanford Center on Longevity, Allianz conducted an online survey of 3,000 adults in March 2016 to explore the topic of longevity and how it is leading people to consider alternative life path possibilities. The respondents were divided evenly among baby boomers (ages 52-70), Gen Xers (ages 37-51) and millennials (ages 20-36).

When asked to design their ideal longer life, nearly half (49%) of Americans said they would prefer a nontraditional model that is unique to their interests where they might work, take career breaks, go back to school, volunteer and try different things in no established order.

The Allianz “Gift of Time” report found that people are generally very positive about the possibilities that may come with longer lives but that process of self-reflection identified many regrets about chances not taken and dreams not realized. While most survey respondents (56%) said they would “travel extensively” or “live in a different place” (35%) with their 30 extra years, nearly a quarter noted they would “take more risks in life.”

More than 90% of the respondents agreed that with an extra 30 years, it is not enough to just put aside money for retirement. People would need a more specific plan that falls outside the confines of traditional financial planning.

“It's encouraging that many Americans seem to understand that a new paradigm is needed to think about, plan for and fund a longer life,” said Katie Libbe, vice president of consumer insights at Allianz. “By taking short- and mid-term goals into consideration while saving for retirement, people will have more freedom to try different things, pursue their passions and explore alternative life plans.”

As part of its longevity project, Allianz profiled three different examples of Americans who have followed nontraditional life paths in a short video to help financial professionals have more fruitful discussions with their clients. “While the concept of longevity is relatively new, its implications are far-reaching and important,” Ms. Libbe said.

Although baby boomers who are in or near retirement may stick to more traditional timetables, younger clients may chafe at the idea of retiring at 65 to play golf. Instead, they may be more inclined to travel now and settle down later. But how do financial advisers, schooled in the linear mantra of save-today-for-tomorrow's-retirement, counsel clients who envision a different path?

Ms. Libbe suggests that advisers ask their younger clients about their shorter-term goals. For example, where do they see themselves in 10 years? Do they plan to go back to school, start a business, or do they want to have the option of having one parent stay home to care for young children?

“We keep trying to put in front of financial advisers that these new generations may want different things than previous generations,” she said. “Younger generations may be looking to try more gutsy things and may need to save for shorter-term goals.”

That may alter the way they save. “If they have a traditional 401(k) with an employer match, they should take advantage of free money,” Ms. Libbe said. But, she added, they may want to save outside their retirement accounts, too. “It's good to have a balance between qualified and nonqualified assets when it comes time to take a leap of faith without suffering the consequences of raiding retirement plan early.”

(Questions about new Social Security rules? Find the answers in my new ebook.)

Mary Beth Franklin is a contributing editor to InvestmentNews and a certified financial planner.

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