Financial Risks to Retirees Over 75

Oct 1, 2019 Share This 

Financial Risks for Retirees 75+

The population of Americans age 75 and over is projected to double by 2040.1 That’s even after taking into account that life expectancy numbers have dropped slightly for three straight years (mostly due to upticks in drug overdoses and suicides).2 The fact is that more and more Americans will reach advanced ages.

Along with advanced age come three distinct late-life financial risks that these retirees may be unprepared to handle, yet financial advisors may understand quite well.

  1. Declining cognitive abilities leading to financial mistakes
  2. High medical expenses; especially out-of-pocket
  3. The possibility of widowhood and its unique challenges

Simply put, risks to all retirees’ mental and physical health, as well as men’s health specifically, increase dramatically as they get older. Although a minority of current retirees are severely affected by these factors in the short-term, these risks could impact more retirees in the future.1

1. Cognitive Decline and Managing Finances

As a retiree’s age gets closer to 75, so does the possibility of dementia (rising from 7% in their early 70s to about 25% in their early 80s) as well as a decline in overall cognitive ability.1 This can lead to mistakes, even during routine financial exchanges, or being the victim of fraud.

The reason why you’ve likely heard about older people becoming victims of fraudulent investment schemes is because 1 in 6 seniors do lose money on them.1 About 30% of Americans know or suspect that a senior family member with dementia has been a victim of financial abuse.3

For most Americans, a pension plan is a thing of the past. Instead of a lifelong stream of payments, retirees are more and more relying on 401(k)/IRA lump sums. When a senior’s entire retirement savings is in one spot, as opposed to monthly pension checks, the potential for devastating fraud increases.

Social Security does have a “representative payee program” that assigns a third party to receive a senior’s benefits, however it’s not frequently used and doesn’t help with income that’s not Social Security, such as the 401(k) example above.1

2. Out-of-Pocket Medical Expenses

Many retirees believe that Medicare will cover their medical costs during retirement. While Medicare does provide universal health coverage, some out-of-pocket expenses can create a financial burden.

Seniors who enroll in Medicare Parts B and D (and any supplemental coverage) may still pay premiums, copayments and deductibles, plus they must pay for services not covered, such as dental and vision. These out-of-pocket costs account for 20% of the total income for those age 75+. And from age 70 on, total out-of-pocket medical spending will total about $100,000 for the average household.1

As they get older and older, most retirees will have less reliable income, which makes this particular challenge even more significant. Some analysts predict out-of-pocket health costs will outgrow retirees’ income. So, that 20% of total income mentioned earlier, which could be a manageable amount for some households, will increase and could impact their bottom lines more in the future.1

3. Widowhood and its Challenges

Becoming a widow can obviously be a stressful experience and life shift. In addition to waves of emotion, her financial responsibilities can feel overwhelming; especially because many couples don’t have a concrete plan in place if one passes away.

Only 14% of widows made financial decisions themselves before their spouse died.4 And, once older women are forced to become the sole financial decision maker, many are often shocked by how many details they didn’t know, from life insurance benefits to the increase in income taxes and Medicare premiums.

Poverty is the most extreme financial situation, however some women experience it when they become widowed. Although the poverty rate for widows has declined to below 13% and continues to fall, that number is based on Social Security benefits not changing; if they are reduced, the poverty rate could climb again.1

Speaking of Social Security, the way benefits are designed, a widow receives the larger of her own benefit or her husband’s. If she has worked and earned as much, or more, than her husband, her Social Security income drops more than it would have when a husband dies.1 Yes, poverty is less common for widows, yet a drop in standard of living might become more common as could needing to dip into wealth savings.

Just like the other two risks mentioned earlier for retirees 75+, widowhood may have more impact on women’s finances moving forward than it does now. You’re in a unique position to guide them through all of these financial risks.

While some of your widowed clients may see a comfortable financial future, many retirees have come face-to-face with a crisis. Our guide, Are Your Clients Facing a Retirement Income Crisis?, helps you with their situations, too, and offers options you can consider, including annuities. Click on the button below for your copy.

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1Center for Retirement Research at Boston College, What Financial Risks Do Retirees Face in Late Life?, January 2019, U.S. Life Expectancy Drops for Third Year in a Row, Reflecting Rising Drug Overdoses, Suicides, December 2, 2018

3ThinkAdvisor, The Impact of Cognitive Decline on Families' Finances: RBC Survey, February 5, 2019

4Digital First Media/Oakland Press, Financial Planning Can Help Ease Impact, Stress of Widowhood, Study Shows, November 19, 2018


Topics: Retirement Planning