Many people say they can’t take a 2 percent return on their money. This was especially true after the financial crisis and the aggressive monetary policy in the United States. However, many Americans have felt that 2 percent was a good return on vehicles like certificates of deposit or money market accounts. Regardless of your perspective, you can never take 2 percent as a probability of success in your retirement plan.
Well, that’s exactly what you might find for many Americans. With just one, three-year long-term care event during retirement, an otherwise successful plan could be wiped out. In fact, we have several case studies that show the impact of a long-term care event on a retirement portfolio. All are devastating to the probability of success, regardless of market performance.
We find that many people who use Social Security properly and have saved a comfortable nest egg can generally retire at or close to their spending levels. That’s not to say that annuities can increase the probability of success to higher levels, but most Americans aren’t too far off their goals with a few solutions, not sacrifices.
However, if we factor in a long-term care event, that dramatically changes the client’s chances of success. In many cases, the probability of success drops from 85-95 percent down to just 2 percent for a healthy spouse. A client can feel comfortable with 85 percent, but not 2 percent.
The solution is properly planning for long-term care through by shifting the risk to an insurance carrier. The additional capital or cash flow rarely replenishes the probability of success to the full 95 percent; however, it typically moves the number back to 70-80 percent. We commonly hear, “I can live with 70 percent, but I can’t live with 2 percent.”
Many people have been comfortable living with 2 percent for a rate of return. Unfortunately, when you show them 2 percent probability of success, they lose nearly all comfort and confidence. Make sure you provide an appropriate probability of success to your clients’ retirement plans by addressing the risk of long-term care.
Talk about long-term care. Ask questions. It could mean the difference between a success rate of 95 percent or 2 percent.
Catch the latest Winning Strategies video where Mike dives into risks in retirement!
One of the largest risks in retirement is a long-term care event.Mike shares two winning strategies you can implement as an advisor to help clients make it through retirement with confidence.Watch Now!
About the Author
Mike McGlothlin is a team leader, retirement industry activist and disciple of Indiana Hoosier basketball. In addition to being EVP of retirement at Ash Brokerage, he is a sought-after writer and speaker. His web series, “Winning Strategies,” provides insight and motivation for financial advisors in many forms – blogs, books, videos, podcasts and more. His latest book, “Free Throw for Financial Professionals,” is available now – learn more at www.freethrowsforpros.com.
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