In 2022, the average mortality for women and men was 79 and 73, respectively, but those with U.S. household incomes in the top 10% can expect, on average to live until their late 80s. Absent proper planning and preparation aimed at a likely increase in longevity, there is a real danger that someone could outlive their savings and retirement, especially if long term care needs are added to the mix. Estate planning for longevity must take into account not only these factors but also the volatility in the economy that will almost certainly occur during an increased lifespan. At Howard Insurance, our planning team is helping clients to address a longer life in four areas:
The Last 8,000 Days
The MIT AgeLab has been studying aging for over two decades and has broken up a person’s life span into four blocks of 8,000 days, with the last block covering the traditional retirement years. Researchers believe those who get the most out of their last 8,000 days have a plan for this time and prepare for it from both a logistics and financial perspective. Logistically, participants in studies at the AgeLab are asked questions about how they want to spend their retirement.
For example, where do you want to live in retirement? What kind of home will you want? If you want to travel, where to do you want to go and for how long? Will you be contributing financial support to children and grandchildren? As you grow older, what types of independent living communities or assisted care housing appeals to you?
In order to achieve these goals, the financial means to do so must exist. Wealth planning that takes into account living longer involves a comprehensive review of all the decisions that affect finances as someone moves between the key life stages. This involves considerations around a potential retirement, housing choices, investment strategies, life insurance needs, community giving goals and eldercare. It also seeks to ensure that all estate planning structures and documents are in place to facilitate a pre-determined transfer of wealth.
By answering these questions and creating future goals, Howard Insurance is able to guide their clients and their advisors in developing a financial plan to prepare to make these goals a reality.
Many who are retired today were fortunate to have pensions or other defined benefit plans which pay a lifetime income. Such employer-guaranteed income is practically nonexistent today, with restrictive defined contribution plans taking their place. For Generation X and the age groups that follow, IRAs and 401(k)s, even fully funded, are likely inadequate to meet the financial needs of a post-work period that could last thirty years or more. It is impossible to determine what the balances of those qualified plans will be in the future and then how to best use those balances without outliving them.
The same is true of savings from other sources like mutual funds, securities – even the sale of a family business. Money can be set aside and invested but no one can travel ahead to the future to see how much should have been saved and how it should be invested. Essentially, Americans are stuck either underfunding their retirement income needs or overshooting them by allocating unnecessary funds over the years.
Life insurance companies have recognized there is a need for not only a defined future income but also an income that is guaranteed for the life of one or more people. By allocating a portion of their savings to a deferred fixed annuity, the annuity contact holder can be guaranteed a specific income that starts on a specific date after age 59 ½ and lasts the rest of their life.
Even those who have reached the age where they need income can purchase a single premium immediate annuity (“SPIA”). A SPIA owner can receive payments monthly, quarterly, semiannually or annually. At the time of purchase, you and an advisor will customize your fixed amount income stream. Payments can be made over one life or two lives, as guaranteed lifetime payments, and can include beneficiary protection for heirs. Payments can also be structured over a specific period of time, such as 10 years, which is referred to as “period certain.” Each payment received consists of the premium plus a portion of interest earnings.
Howard Insurance can take the guess work out of estimating how much income there will be in retirement by demonstrating how both qualified and nonqualified funds can be used to purchase different types of annuities with customizable features.
Protect Your Legacy
At death, one’s accumulated wealth can go to one of three places – the U.S. government, charity or to chosen heirs. Unless nearly all of an estate is left to charity, above any exemptions available at the time, the IRS is due their portion – up to 40%! This could erode the legacy intended for children and grandchildren. By establishing trusts and a plan for annual gifting, some wealth transfer taxation can be mitigated. However, taxation is not the only concern for those planning for a longer lifespan.
By living longer, it is likely there will be sizeable expenses related to medical care, long-term care and critical illness. These costs can chip away at a legacy as much, or more, than taxation. This is where life insurance fits into longevity planning by providing a tax-advantaged solution to replacing wealth lost to taxation and expenses from living longer.
Cash value life insurance is a unique planning tool in that premiums paid grow tax-free and can be accessed tax-free during one’s life. Then, when the death benefit is paid, it is income tax-free and, if structured properly, can be estate tax-free. No other financial instrument has these tax attributes and this why those wishing to protect their wealth earmarked for the next generation rely upon life insurance. The life insurance specialists at Howard Insurance can illustrate how life insurance can be positioned in a financial plan to keep wealth protected and in the family.
Expect Long-Term Care Costs
A century ago, when Americans either did not live until retirement or died shortly thereafter, they usually died after a brief illness. Today, affluent American are living decades longer and medical advances have seen to it that most of these years are physically enjoyable. Those same medical advances, though, have contributed to “the long good-bye” where an eventual physical decline can last years, and costs can soar from needing an increased level of care. Perhaps of equal concern is becoming a burden to other family members who, absent other plans, must step-up to serve as caregivers. In addition, while remaining in one’s own home as long as possible is desired, this may not be possible without the requisite resources.
Long-term care insurance can alleviate the worry around the impact of aging-related expenses, including being able to dictate who provides care and where that care is delivered – in your home or elsewhere. By purchasing either a traditional long term care policy or by adding a rider to a cash value life insurance policy, funds will be available to alleviate these concerns. Howard Insurance will walk through how long-term care insurance can be custom-tailored to suit individual needs, including choosing from a multitude of benefit periods, elimination periods and inflation protection options.
The Best Days are Ahead
Most of us prepared for college, prepared for our careers, prepared (as best we could) for parenthood — why should retirement be different than any other life stage? Words and actions matter. For over 75 years, Howard Insurance has helped each of our select clients secure their assets, their ambitions, their businesses and, ultimately, their legacies. Leaders in private insurance advisory and risk management, we pair deep expertise with sincere attention to our clients’ needs to create unique solutions that benefit them best.