With so many people living longer, advisors help to make sure the fear of outliving money doesn’t become a reality

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Alfred Abraham has had colon cancer, prostate cancer, open heart surgery and his left eye removed.

Yet at 100, he's still alive and well. Every day, he and his partner Brian eat fruit and salad and go for walks. He and his family were planning a big party to celebrate his becoming a centenarian this past April, but the pandemic wouldn't allow for it. 

"At the present time, I'm doing very nicely despite what's going on," said Abraham, a former CPA and bank executive who lives in New York. 

One big part of why he's doing so well is his financial advisor, he says.

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"He's doing a very good job for me," Abraham said. "We talk at least once or twice a month to discuss my investments and financial plans." 

There were more than 450,000 centenarians in the world in 2015, a  number that is expected to balloon to more than 3.6 million by 2050.

Although life expectancy has actually decreased slightly over the last few years, due to a rise in drug overdoses, suicide rates and liver disease, it's becoming more likely that people make it into their 80s, 90s and beyond. A 65-year-old woman today has a 50% chance of living to 85, and a 25% chance of crossing into her 90s, according to the Schwab Center for Financial Research. 

One of the biggest concerns investors have is outliving their money – and it's often their financial advisors who work with them to make sure this fear doesn't become a reality.

As a result, financial advisors are increasingly accounting for the real possibility that their clients could be around for very long time. That includes finding ways to stretch out their savings and to protect their money from the risks and expenses associated with old age.

Amy Irvine

Source: Amy Irvine

"When we're planning for clients, we're planning to 95 or 100," said Amy Irvine, a certified financial planner at Rooted Planning Group in Corning, New York.

"Many of our retirees are still in great shape," she said. "They're living longer, and requiring resources for longer."

Stretching out clients' savings 

Carolyn McClanahan, a CFP and director of financial planning at Life Planning Partners in Jacksonville, Florida, said too many advisors don't think about how long their clients could live. 

"If you have a client who lives a very healthy life, and especially if they have longevity in their family, you should be planning to age 100," McClanahan said. 

And sometimes the planning needs to go in the opposite direction, she said. 

"If you have clients who are absolutely not taking care of themselves, say they're obese and have diabetes and smoke, you shouldn't be using age 100 because you're going to make that person not enjoy their money because they're worried about running out," she said.

Still, most clients are worried about outliving their savings. 

To help, McClanahan considers how much a client spends each year versus how much they'll have coming in from a pension, Social Security and a conservative rate of return on their savings.

We've had some clients say, 'I'm 80, how much longer am I going to live?'

Amy Irvine

certified financial planner at Rooted Planning Group

Some clients will have enough funds to last way beyond 100, she said, but it might be tighter for others.

"That's when you have to have those deeper conversations about life expectancy," McClanahan said. 

Some clients don't realize how long they could live, Irvine said. 

"We've had some clients say, 'I'm 80, how much longer am I going to live?'" Irvine said. "They're thinking if they have another five years, they're lucky.

"But we're thinking, you're really healthy, you could easily live another 20 years."

Although it's not a fun conversation to have, Irvine said she'll push some clients to find ways to reduce their spending to allow for that possibility. 

There are other options beyond cutting spending. McClanahan said she recommends immediate-fixed annuities to some of her clients who are at risk of depleting their savings. 

Carolyn McClanahan

Source: Carolyn McClanahan

"These are simple because there are no bells and whistles," McClanahan said. "You give the insurance company $100,000, and they pay you a set amount every month for the rest of your life.

"If you die in five years, they win," she added. "If you live 40 more years, you win."

In situations where chances are marginal that someone's going to have enough to retire on, "you want to create more guaranteed income stream in case they do start to run out of money," McClanahan added.

In some cases, a clients' age will have little impact on their investing strategy, Irvine said. For example, those fortunate enough to have enough saved that they plan to leave money to children or charities may want that money invested more aggressively than you'd expect for someone whose own timeline is running out. 

"It's about the needs of the client," Irvine said. 

Protecting their money 

Older clients face extra risks that advisors need to plan for, McClanahan said. For example, she said that even though dementia is a common problem, "advisors stick their heads in the sand when it comes to cognitive decline."

"It's so important to have an aging plan in place in advance," she said.  

McClanahan has her clients sign a letter giving her permission to speak to a trusted person if they start exhibiting signs that they may no longer be able to manage their finances. And she discusses with clients in advance where they might live if they develop dementia; some people want to stay in their homes, while others will want to move into an assisted living facility. 

To mitigate risks, Irvine said she also begins speaking to her clients about their later years long before they arrive at them. 

"The best time to be talking about these issues are when the mind and the body are good," Irvine said. 

For example, she might ask a client in their 60s when they believe they should stop driving. (A car accident can not only be dangerous, it can lead to expensive lawsuits, too, Irvine said.) It's helpful to pinpoint such red flags before a client starts exhibiting them, she added.  "There's a line you get to where you can't have those conversations anymore." 

Another concern? So-called grandparent scams are a huge risk to older people's money, said Robert Williams, vice president of financial planning, retirement income and wealth management at the Schwab Center for Financial Research. 

Fraud costs seniors nearly $3 billion a year, Williams said. And scammers have found new ways to target older people in the pandemic. 

"It's an advisors' role to watch out, and if they see any evidence of fraud or abuse in their older client, generally, they have to report that," she said. 

And accounting for health-care expenses 

As clients get older, they may be spending less on dinners out, shows and vacations. One category that's likely to rise, however, is health-care costs. 

Financial advisors can help their clients prepare for and navigate these later-in-life expenses.

For example, some clients should buy long-term care insurance, which can cover much of the costs associated with a nursing home, assisted living or in-home care. These expenses can be hundreds of thousands of dollars.  

"We incorporate these costs into our financial planning process," Irvine said. 

Health insurance is another area advisors need to help their clients with, she said.  For example, older people often need the prescription part of their Medicare plan tweaked because their drug prices can be erratic. And, Irvine added, "the longer you live, the more that cost is." 

Irvine also recommends that advisors dedicate some of their time to just schmoozing with their clients in their 80s and 90s. 

"They've been through an enormous journey," Irvine said. "There's a ton of history there.

"If we take it beyond the numbers and get to know them as people, it makes us a better financial planner."

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