One of the many things I appreciate about this profession is the constant and ongoing challenge associated with traditional retirement planning statistics and percentages. Whether it’s the 4 percent rule being argued, new research on the pros and cons of active versus passive investing, or a new study on the state of retirement savings, statistical data is an important part of the financial services industry.
Although some advisors are better at, or prefer, the numbers side of the business, and others tend to focus more on the relationship side, the reality for both camps is that there is a new breed of statistics impacting our industry and clients — data that suggest running out of money pales in comparison to running out of family, friends, good health and purpose.
Study after study paints a startling picture about what takes place after a client leaves an advisor’s office with that fancy leather binder full of colorful charts and graphs. These facts and figures will eventually force our industry to embrace tools and resources to address the mental, social, physical and spiritual aspects of retirement planning instead of just the financial ones.
As a starting point, one of the biggest challenges people face in retirement is meeting the expectations they have about retirement. In my book Naked Retirement, I mention a researcher who found that 75 percent of pre-retirees expect life in retirement to be better; but only 40 percent of actual retirees find that to be true. That’s a major disconnect, or in advisor speak, a major funding gap that needs to be addressed. A recent Genworth study suggests that the root cause of this may be financial or timing related:
° “52 percent of pre-retirees expect their living expenses to decrease in retirement, but actually, 65 percent of retirees saw their costs rise in retirement.”
° “73 percent of Americans are ‘confident they will retire as planned,’ yet only 48 percent of actual retirees ‘retired when they expected.’”
There is no doubt that rising costs, an unexpected early retirement, or the need to work longer than anticipated can impact retirement expectations, but divorce, declining physical capacity, fewer social outlets and other non-financial factors can cause greater impact on how a person makes the transition into this next phase of his or her life.
A recent New York Times article noted that the overall national rate of divorce in the United States is trending down, except for one group: the 50-plusers, who have seen their rate of divorce surge 50 percent in the past 20 years. In fact, one in four couples divorce after age 50.
That’s bad for families as well as advisors who could lose clients and assets under management as a result. To combat the issue, planners need to consider making suggestions that go beyond money. It’s not uncommon for an advisor to suggest that clients practice retirement by living on 70 percent to 80 percent of their pre-retirement income or increase their fixed-income allocation as they near retirement. But it’s less common, and more essential than ever, that advisors also suggest each spouse invest in the other by scheduling a regular date night or weekend retreat to practice spending more time together. The simple truth is, if their relationship isn’t strong and prepared for retirement, no amount of savings can repair the damage.
That doesn’t mean advisors need to turn into marriage counselors, but they should be prepared to include marital tips and ideas in the plans they create or give clients a standalone book or guide to help them make a successful transition together.
Although people are living longer, the number of people with certain health problems — obesity, diabetes and high blood pressures – are rising. One study found that about 40 percent of baby boomer respondents said it was difficult for them to kneel or stoop, stand for two hours, walk one-quarter mile, climb 10 steps without resting, sit for two hours, lift and carry 10 pounds, reach over their heads, push or pull a large object, or grasp small objects.
That’s a startling statistic because many of those things play a crucial role in how people measure the success of their retirement. The way I read it is that 40 percent of people are going to struggle on a vacation that requires some walking, standing or holding onto a rail. It means people are going to find it difficult to play on the floor or in the grass with their grandchildren … and that things like gardening, biking with a friend, or watching a movie may be less enjoyable than ever before. The evidence is clear, having a functional body in retirement has to be of equal, if not more value, than having the right savings and asset allocation.
Notably, researchers have found that leisure-time exercise in retirement does increase for many retirees. However, this boost does not make up for the loss of work-related physical activity, especially for those who previously worked in physically demanding occupations. That doesn’t mean advisors have to add the role of personal trainer or physical therapist to their skill set, but they can raise awareness by discussing with clients the need to protect physical ability when they talk about other protection-related topics, like disability, life and long-term care insurance.
When a person is working, they can have up to 22 high-quality interactions with other people every day. High-quality interactions are face-to-face discussions with another person. In retirement, that number can get cut in half and typically includes lower-quality interactions, such as by phone or e-mail.
While the idea of eliminating personal interactions with some co-workers may sound great at first, humans weren’t made to do life alone. Fewer interactions can lead retirees to feeling isolated, bored and out of touch — three factors that can compound negative feelings about retirement and cause people to seek drugs and alcohol to cope with the changes.
A recent British report found that a record number of U.K. retirees are receiving hospital treatment after taking recreational drugs like cocaine, cannabis and amphetamines. The study reported that doctors diagnosed 888 people over the age of 65 as being poisoned by illicit drugs, with 473 age 75 and over. Ten years ago the total was 283.
Figures released by the U.S.-based National Institute on Drug Abuse (NIDA) in 2011 showed that the percentage of Americans age 50 to 59 who reported having used illicit or prescription drugs more than doubled, to 6.2 percent from 2.7 percent, between 2002 and 2009.
Furthermore, Dutch researchers have found that retirement was linked with changes in alcohol consumption. Their results revealed that people who retired involuntarily tended to drink more alcohol than non-retired employees, while those who stopped working voluntarily did not change the amount they drank.
Alcohol and drug-related statistics may not be as surprising as some of the others, considering that baby boomers as a group used more drugs and are more accepting of drug use than their parents. However, as advisors I believe we need to talk about the possibilities of drug and alcohol abuse if clients are not prepared for the social and personal changes that retirement can bring.
Lack of preparation in one or more of these non-financial areas of retirement can result the most troubling outcome: suicide. In May the Centers for Disease Control and Prevention released a report that showed in 2010 the number of suicides in the United States reached 38,364, surpassing the number of deaths from motor vehicle crashes. Suicide rates among those aged 35 to 64 increased in all states with statistically significant increases occurring in 39 states. The highest percentage increases were among men in their 50s, whose rate went up by nearly 50 percent to 30 per 100,000, and women in their early 60s, whose rate rose by nearly 60 percent.
Experts say it likely stems from a variety of issues including lofty expectations about their ability to constantly re-invent themselves as well as the ability to stay young and relevant forever. Reality is not everyone is aging gracefully; they’re not as mobile and capable as they were before; and many are finding themselves alone instead of surrounded by “peace and love,” literally bringing to fruition the song lyrics of their generation including those by The Who, “I hope I die before I get old,” and Beatles, “Will you still need me, will you still feed me, when I’m sixty-four?”
As advisors, we excel at sharing the statistics and percentages we believe will best prepare our clients for the financial aspects of retirement. Now, as new data shine a different light on retirement, we need to embrace the opportunity to make sure our clients are prepared to manage those factors as well.
P.S. let me know what you think of the article by leaving a comment or e-mailing me. Also, let me know if you’re interested in learning more about my companion books and guides for financial planners that address the mental, social, physical and spiritual aspects of retirement.
Follow Robert Laura on Twitter @robertlaura. He is the president of SYNEGOS Financial group, co-founder of RetirementProject.org, and author of Naked Retirement. He can be reached at firstname.lastname@example.org.