Why Longevity is a Crucial Factor in Retirement Planning

Why Longevity is a Crucial Factor in Retirement Planning

Longevity can mean different things to different people. We want to think that it signifies a long life, an active lifestyle, and remaining relevant in our communities as we age. Reality has a different take on longevity. For many Americans, longevity remains an unknown risk with unknown costs. 


Longevity creates a spending “smile.” Here’s how it looks:

  • Retirees start out their golden years traveling and visiting with family and friends – enjoying their retirement. 
  • Often, they begin to slow down. Rarely is it because they want to. Instead, their energy levels and health begin to take a front seat to their vision of retirement. They stay home more frequently and follow a routine. 
  • Finally, in too many situations, their health deteriorates to a point they need additional care services. The retirement that they planned for – both figuratively and financially – is off course, and there is little chance of pulling it back. 


Risks are all over the place during retirement. A growing number of Americans need extended care, either at home or in a facility, which costs thousands on a monthly basis. Our savings rate continues to decline, placing pressure on whether our clients will run out of income during retirement. General health care expenses remain an unknown and a topic which is surely going to change several times during a retirement span. Simply put, we cannot ignore the risks of living too long. 


Start Talking

As planners, we owe it to our clients to have a conversation about longevity. By planning ahead, you give your clients options that can’t be offered at the time of the need. Risks can be mitigated using guaranteed income, shifting the risk to an insurance product, or through proper distribution planning.


It’s easy to simply apply a distribution percentage and assume a rate of return. That’s why we have software – to do the easy stuff. But, our value can’t be brought down to the level of a software package. Our value as planners is to think critically about our client’s situation and help them meet challenges – those they are aware of and those that are not present today. That requires making sure there is enough income to meet the demands of longevity. 


We have to make sure our clients can transition from accumulation to distribution. The rules are dramatically different for these phases of life. Take the time to discuss the client’s vision of retirement, the duration, the standard of living, and potential risks that might get in the way. Hit those risks head on. It will provide confidence and peace of mind to your client. And, at the end of the day, that is one of your largest value propositions to your clients and prospects. 


Winning Strategy

Longevity means a lot of different things. Make sure you have a clear picture of what longevity is and what risks come into play. Hitting those risks head on can mean the difference between success and failure for many Americans in retirement. 


About the Author

Mike McGlothlin is a tireless advocate for the retirement planning industry. As executive vice president of retirement at Ash Brokerage, he heads a team providing income planning solutions focused on longevity and efficiency. He’s also a thought leader who provides guidance and assistance for advisors and broker-dealers navigating marketplace and regulatory changes. You can find a collection of his blog posts in his book, “Above the Clouds … Winning Strategies from 30,000 Feet.”