The population of Americans ages 75 to 84 is 20 times higher than it was in 1900, while the 85+ age group is 53 times larger.1 More and more Americans will likely reach higher ages in a world full of advanced medicine and healthcare technology, and that means preparing for what it entails to live well past normal retirement age, which the Social Security Administration currently defines as between 65 and 67.2
While the list of issues that could arise as one ages is long, three standout late-life financial risks may pose major problems for some retirees over 75:
- Declining cognitive abilities leading to financial mistakes or possible victimization
- High medical expenses, especially out-of-pocket costs
- The possibility of widowhood and its unique challenges
Simply put, risks to retirees’ mental and physical health can increase dramatically as they get older and, barring any quantum leaps of science, that’s how it’s likely to remain.
With that in mind, understanding how and why to get a handle on these financial risks in this unique phase of life is important for helping your clients prepare ahead of time. Let’s take a closer look at each of these risks and how you can help your clients prepare.
1. Cognitive Decline and Managing Finances
As a retiree’s age approaches 75, the possibility of cognitive decline may increase. The National Institute on Aging estimates that six million Americans, most over the age of 65, may have dementia caused by Alzheimer’s.3 This decline in cognitive function could potentially lead to mistakes during even routine financial exchanges — worse, it could make older retirees prime targets for fraud.
But there are steps retirees can take to protect themselves from suffering catastrophic losses to their lifetime savings. For many Americans, a pension plan is a thing of the past. Instead of a lifelong stream of payments, today’s retirees are more often relying on 401(k) / IRA lump sums. When a senior’s entire retirement savings is in one account as opposed to arriving as monthly pension checks, the potential for devastating fraud increases, like the dangers of putting all of one’s eggs into one basket.
Sadly, it’s fairly common for older people to become victims of fraud. In 2020, financial institutions filed more than 62,000 elder financial exploitation Suspicious Activity Reports, tallying over $3.4 billion.4
This is a serious issue plaguing senior citizens, so they and their advocates need to stay vigilant and pay close attention to account activity. It may be worth asking if your client has a trusted friend or family member to assist them and serve as sort of a watchdog on their behalf as they age.
2. Out-of-Pocket Medical Expenses
Many retirees believe that Medicare will cover their medical costs during retirement. While Medicare does provide health coverage, it doesn’t cover everything, including long-term care, most dental care, hearing aids and more.5
Some out-of-pocket health expenses can create a financial burden. For instance, the savings needed for someone age 65 to have a 90% chance of covering premiums and drug expenses went up 9% between 2020 and 2021.6 You can imagine that number could climb higher the longer a person lives beyond 65.
As they get older, many retirees’ income can become less reliable, which can make this particular challenge even more significant. Be realistic with your clients about how much they should have ready for such expenses as they age throughout retirement.
3. Widowhood and its Challenges
Becoming a widow or widower can obviously be a stressful experience and extreme life change. In addition to the emotional challenges, the financial responsibilities can feel overwhelming, especially because many couples may not have a concrete plan in place for when one of them passes away.
Making financial arrangements after a spouse’s death can be confusing and frustrating for the surviving spouse. There’s a lot of information to gather and organize, including life insurance claims, figuring out debts and ensuring income stability.
When it comes to income during widowhood, Social Security survivor’s benefits are a possibility, as a widow or widower aged 60 or older may receive monthly payments as the surviving spouse.7 The way benefits are designed, a surviving spouse receives the larger of their own benefit or their spouse’s.7
While that can help ease some of the financial burden, Social Security is a limited income source — one that on its own may not be enough to sustain the surviving spouse. Be sure to discuss other options for ensuring retirement income stability with both spouses.
Do Your Clients Have Enough Retirement Income?
Underneath all these serious financial risks for retirees age 75 and up is the very real threat of not having enough income to last throughout their retirement.
In the link below, you can find our page dedicated to this vital question: Are Your Clients Facing a Retirement Income Crisis? We’ve gathered statistics and broken down how advisors can help their clients prepare for a sustainable retirement. We’ve even provided a downloadable version of the page for you to keep and use later, no internet connection required.
Simply click the link below to access this helpful guide today.
1Administration for Community Living, Projected Future Growth of Older Population, May 25, 2021
2Social Security Administration, Normal Retirement Age, Undated
3U.S. Department of Health & Human Services - National Institute on Aging, Alzheimer’s Disease, July 2021
4Consumer Financial Protection Bureau, Suspicious Activity Reports on Elder Financial Exploitation, Undated
5Medicare.gov, What’s not covered by Part A & Part B?, Undated
6EBRI, Projected Savings Medicare Beneficiaries Need for Health Expenses Spike in 2021, January 13, 2022
7Social Security Administration, If You Are The Survivor, Undated