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Wanted: Retirement Advisors

Over the past several decades, the financial services industry has maintained one steady focus: accumulating investor wealth for retirement through 401(k) plans, individual retirement accounts (IRAs) and IRA rollovers. Although this approach, accompanied by a long-term buy-and-hold philosophy, has worked well for companies and investors, that model is slowly changing.

The elements of financial planning that historically have been ignored are optimizing Social Security, working in retirement, determining out-of-pocket health care costs and planning for long-term care. For current and future retirees to maintain long-term financial stability, advisors must become educated and confident in addressing these pivotal issues facing their clients (who, by the way, hold an estimated $15 trillion in assets).

With change comes resistance, and not everyone has accepted the notion that advisors should also become authorities on health care and Social Security. However, an undeniable shift is occurring across many institutions. Fidelity, Merrill Lynch and Nationwide, among others, have written extensively about bringing health care expenses front-and-center in the retirement planning domain.

The good news is that advisors do not need to be experts to provide proper guidance on retirement-related issues. It is more a matter of becoming familiar with how the programs work and creating a long-term plan to help clients make the right decisions as they arise.

Understanding True Retirement Age

Gone are the days when workers could retire at 62, collect a pension after 35 years of employment at the same company, supplement their income with Social Security and expect Medicare to take over where employer-sponsored health insurance left off. Disappearing pensions, longer life spans and higher out-of-pocket health care costs have redefined retirement.


There is another facet to this evolving paradigm: many baby boomers are choosing to forego the traditional road to retirement and instead are continuing with their current careers or forging into new occupational endeavors. In essence, true retirement age only occurs when a person completely stops working, whether it is 62, 72, 82 or 92. 

Life Expectancy

Firms historically have used two life expectancy numbers in the planning process: 95 and 100. However, according to the National Center for Health Statistics, “Life expectancy at birth for the overall U.S. population was 78.7 years in 2011 – 81.1 for women and 76.3 for men.” This rather sizeable disparity between theory and reality results in a long-term planning approach that simply is inadequate. Creating a personalized longevity projection based on individual and family health history provides advisors with a much more effective and accurate measurement tool to determine necessary income and probable expenses throughout retirement. 

The evidence no longer can be ignored: the longevity variable has the greatest single impact on retirement planning.

Social Security

Correct Social Security decisions can increase retiree nest eggs dramatically.  With little or no information regarding how full retirement age (FRA) affects benefits, many simply choose to claim benefits immediately and fail to investigate more lucrative long-term options.

For example, Mary has just turned 62 and wants to claim her benefits. She is set to receive $1,200 per month. Here is what she can expect if she lives to age 92. 

As evidenced by the chart, advisors who understand the impact of FRA on both the recipient and their spouse could augment their clients’ benefits by tens of thousands of dollars throughout retirement.

There are more than 2,000 possible claiming strategies based on income, working in retirement, marriage and other variables. Advisors certainly do not need to memorize them all; specific software applications can create “what if” scenarios and perform the necessary calculations based on individual client needs. The most important thing is for advisors to know that optimizing Social Security is a crucial component to the retirement planning process.

Working in Retirement

The U.S. Department of Commerce shows that more Americans are working beyond age 65, and attributes this trend, in large part, to financial necessity. In fact, most recent articles suggest that because of the market crash of 2008, baby boomers are financially unprepared to stop working at a traditional retirement age. However, research from the Pew Research Foundation suggests that boomers are not only working longer out of necessity. The majority (54 percent) of workers ages 65 and older said the main reason they work is simple: they want to. When asked directly about the impact of the recent recession on their decision to remain in the workplace, only 38 percent cited this as a reason to keep working.

So, as stated before, true retirement age begins the day one stops working.  However, the decision whether to work is tightly woven into both Social Security and Medicare.

Those who claim Social Security at age 62 face the earnings test, in which $1 is deducted for every $2 earned over $15,120. The year FRA is reached, $1 is deducted for every $3 earned over $40,080. There are no income penalties after FRA is reached. Bottom line: if you clients are going to continue to work, claiming early might not be the best idea.

Medicare Premiums and Means Testing

Working in retirement can also have an effect on Medicare premiums. If a single Medicare recipient earns more than $85,000, he or she is open to paying substantially higher Medicare premiums. This is called Medicare means-testing. 

Medicare categorizes almost all investment income, which can translate into higher premiums. Savvy advisors who are educated in the realm of health care costs would know that indexed universal life insurance policies and Roth IRAs do not affect income. Therefore, they might be the best investment option for some clients.

The Future

Integrating these variables into financial planning has been slow to develop, but it is happening. Firms intent on maintaining client relationships understand that knowledge in these key areas will set ambitious and entrepreneurial advisors apart from the rest. Aging consumers are seeking answers as they make the transition into retirement, and those who fail to uncover the solutions will be left far behind.

With $15 trillion in the balance, consumers cannot afford to ignore their risks and their advisors certainly can’t either.


Ron Mastrogiovanni is chief executive officer of HealthView Services and co-founder of FundQuest. Contact him at [email protected] [email protected].

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