At 102, Lois Elsa Young has already spent decades in retirement. Walking out of 3M's Hutchinson, Minn., office in 1981, just a few months after her 65th birthday, Young planned to luxuriate for a few weeks in her newfound freedom until she found something meaningful to fill up her time.
"I decided that I didn't want to work for pay anymore," she said. "I wanted to live so I could do the things I wanted to do."
And for the most part, she has. The former personnel assistant has filled most of her time volunteering, with stints at a hospital thrift shop, visiting nursing home patients, and delivering Meals on Wheels until she was 90 and driving became too difficult.
For most of her retirement, Young has enjoyed good health and the company of family. Between 3M's pension, Social Security, an investment account, shares of 3M stock, and a penchant for thrift that she credits to her Scandinavian forebears, she hasn't worried much about her finances. "As my children will attest, I have always been a little tight with the dollar," she said.
Retirement wasn't a costly undertaking while her health was good. But three years ago, she suffered two fractures that each required lengthy rehabilitation in nursing homes, requiring her to move out of the home she owned mortgage-free where she had lived since the 1970s. Now she's paying $3,000 a month for room and board at an assisted-living facility that also has a nursing home she may move to if her health worsens, though she'll have to pay more. Some concerns about her finances are starting to creep in.
"I just hope that by the time my money runs out, I do too," Young said.
PUSHING PAST 100
Living to 100 used to be mostly a thing of science fiction. But more than 72,000 Americans passed the century mark in 2014, a nearly 44% increase from 2000, according to the Centers for Disease Control and Prevention. And their ranks are likely to continue to grow.
Such extreme longevity raises the question: How will retirees afford it?
And while not everyone will hit the century mark, retirees on average can expect to live longer than ever before. Men who were 65 years old in 1940 when Social Security first started paying ongoing regular monthly benefits were expected to live about 12 years longer, according to the Social Security Administration (see "How 65 Became the Default Retirement Age"). A 65-year-old woman that year was expected to live another 13 years. By 2016, a 65-year-old man could expect to live an additional 18 years, according to the SSA, while a 65-year-old woman could expect to live nearly 21 years longer. Those additional years potentially can add a lot of expenses, especially in today's health care environment.
And those, of course, are just the averages. Many people with higher incomes can expect to live well above the averages due to more nutritious diets, better access to health care, and lower stress levels.
"If you're educated enough and have enough money, chances are you are going to live a long life," said Joseph Coughlin, director of the AgeLab at the Massachusetts Institute of Technology and author of the book The Longevity Economy: Unlocking the World's Fastest-Growing, Most Misunderstood Market.
Unlike Lois Elsa Young in her working years, today's retirement savers are dealing with some strong headwinds: Pensions are few and far between, the safety net of Social Security and Medicare is fraying, and health care costs are spiraling out of control, with few viable fixes on the horizon. Retiring at 65 looks very different if life expectancy is 80 or 85 than if it is closer to 100 — or older. CPAs must orient their clients to this new reality and help them find alternatives.
"When I'm working with younger clients, I throw away all the rules of thumb," said Mike Velazquez, CPA/PFS, president of U.S. Wealth Management of California in Glendale, Calif. "From a planning perspective, 65 doesn't mean anything anymore."
START PLANNING EARLY
Jenny Griffin has read the statistics, and she's worried. Griffin is a 49-year-old marketing consultant living in New York City with her husband and her two children. They save 10% to 15% of their income for retirement. But Griffin has no idea how long a retirement they should plan for.
"I think about it all the time," Griffin said. "I just don't know how long we're going to live, and I know we have to be prepared."
In her late 30s, Griffin started working with a professional because she wanted someone to hold her accountable for saving and investing. As she got married and then had two children, she continued to make retirement planning a priority.
"We're not going to be able to retire in our early 60s," she concluded, based on conversations with her planner. "Since [we] had our kids pretty late, we'll be in our early 60s when they're graduating from high school. We plan to work until at least 70."
Griffin is realistic about what she needs to do to make sure she can continue to work as long as she needs to. As a consultant for a large financial services firm, she is careful about seeking out projects that build up her skills, to prevent ageism from derailing her ability to earn and continue to contribute to her retirement savings. "I make sure that my connections are fresh and I get brought into projects that are high-quality and are adding to my skill set," she said. "If I keep my work high-quality, I'll be able to keep myself competitive."
And even when she and her husband retire, they plan to find ways to supplement their income. "I do think of ways we can bring in revenue through side businesses," she said.
WORKING AND LEARNING LONGER
Griffin and her husband are thinking about work in the way many experts who study aging wish more people would. Longer life means that clients must think about their careers in entirely new ways, and they may need CPAs to give shape to these new configurations.
"It's naïve to think that a four-year college education alone can serve a 40- or 50-year career," said Catherine Collinson, president of the Transamerica Center for Retirement Studies. "We all need to commit ourselves to lifelong learning."
Therefore, Collinson said, human capital must play a larger role in financial planning. Clients will need to constantly refresh their skills, take training courses, or even return to school for new degrees. And CPAs can help them figure out how much of their budgets should be carved out for these endeavors.
"Don't just think about a 529 [college savings plan] for your children," Collinson said. "Think about it for yourself, too."
Work for clients in their 60s, 70s, and beyond may not look the way it did when they were starting out and building up their primary careers. Work at later ages may involve a career change to a new field, part-time employment, or the launch of a consulting practice.
"An encore career is going to be critical," said Martin Shenkman, CPA/PFS, J.D., an estate planning attorney in Fort Lee, N.J. "How else are you going to generate some extra income if you need the money? Those are the conversations that practitioners need to be having with their clients."
Even clients who don't need the money may still want to work. With longer lifespans, there are simply more years to fill up with activities. And higher-earning clients may not be ready to let go of their careers. CPAs need to understand that retirement, in the traditional sense, may not be every client's goal.
"No matter how nice a beach or how nice the golf course, most people want more meaning than that," Coughlin said. Clients will need help figuring out how they want to spend those later decades, he said.
BRACE FOR HEALTH CARE COSTS
The advances in life expectancy in the early 20th century were largely attributed to vaccines and improved sanitation. In the late 20th century, behavioral and environmental improvements edged life expectancy higher as people gave up smoking and cities cleaned up their water and air. The next leap, Coughlin said, will likely be the result of medical advances.
"Think about the number of diseases, where the word itself was once a death sentence," said Coughlin. "Now they are chronic conditions."
Even an illness like cancer can be managed in some cases so it's simply a chronic condition. The bad news is that these new treatments come with a big price tag, and some may not be covered by Medicare or private insurance.
"That's the big unknown," said Lyle Benson, CPA/PFS, the founder of L.K. Benson & Co. in Towson, Md. "Who knows what those costs are going to be?"
Health care costs are expected to rise at more than twice the rate of the consumer price index, the rate to which Social Security cost-of-living adjustments are pegged, for the next decade, according to a study by HealthView Services. A survey by Nationwide Retirement Institute found that 64% of preretirees, including those who are affluent, are "terrified" by the effect of health care costs on their retirement plans.
CPAs must be prepared to talk to their clients about how much medical care they really need. The health care industry often views more treatments and tests as better, but such interventions don't always improve outcomes. Clients may need to be educated about how to be better — and more frugal — health care consumers.
And then there's long-term care. The national median cost for one year in a nursing home with a private room is over $97,000, according to long-term-care and life insurance provider Genworth Financial. And though most people require long-term care for just a few years, those with Alzheimer's and dementia are looking at even higher costs.
Long-term-care insurance, though it can help defray the cost, is far too expensive for many clients. "Long-term-care insurance has changed so much in the last decade, and the pricing has gone up significantly," Benson said. And there's concern that the industry is facing severe challenges of rising claims, low mortality, and lower-than-expected policy lapse rates, according to a 2016 report from the National Association of Insurance Commissioners and the Center for Insurance Policy and Research. Some insurers have exited the market, leaving behind just a handful of carriers, the report noted.
That's a concern not just for clients' own long-term care, but also for their parents'.
"Because everyone is living longer, you could be approaching retirement or already in retirement and having to be a caregiver," said Coughlin. Add to that adult children who may still be getting financial support and perhaps grandchildren who need child care, and Coughlin predicts that future retirees will give the term "sandwich generation" a whole new meaning.
"It will be more of a triple-decker," he said.
CPAs can help facilitate family conversations about caregiving that involves multiple generations, including identifying how care will be paid for and making a plan for care if the money isn't available.
THE BIG OPPORTUNITY
Given the widespread anxiety around retirement planning, it's no wonder that many CPAs are putting their focus on retirement. But they may not be approaching the challenge in the right way.
"I think we need to retire the term 'retirement planning,'" Shenkman said. He prefers the term "longevity planning."
CPAs must widen their view of their role. "Life planning is the new, holistic approach to financial planning," said Kelly Ferrin, a gerontologist and longevity expert who works with the financial services industry to help practitioners better understand the issues that need to be addressed. "There needs to be way more focus on the human aspects, because it's more than just the money, it's their life."
Because longevity plays a significant role in planning today, CPAs must be ready to wade into areas in which they may not have traditionally offered advice, such as caregiving and health considerations.
"At the very least, ask about your clients' health," said Ferrin.
Though CPAs are not medical professionals, they need to help their clients see the connection between their health and their finances, including the fact that a healthy lifestyle generally has the potential to lead to lower medical bills later in life, Ferrin said.
For Shenkman, this kind of planning means that CPA financial planners need to deepen their relationships with clients and their families. He urges CPAs to add bookkeeping, bill paying, and financial monitoring to their services lineup, even if they bristle at the idea of this kind of engagement.
"They're missing an opportunity," Shenkman said. As he explained, many people over 85 have some degree of cognitive impairment. Assisting with or handling their bill paying could enable CPAs to monitor any cognitive decline and provide needed and desired assistance.
Becoming a daily money manager can also help CPAs spot financial elder abuse. "This isn't just bookkeeping," Shenkman said. "It's crucial as you're stepping into the role of the trusted adviser, and that creates benefit and opportunity."
To be sure, longevity brings with it the possibility of many more healthy, productive years for clients to enjoy their families, passions, and work. But it comes at a cost. CPAs are in an excellent position to help their clients navigate this uncharted territory with finesse and financial prudence if they are willing to accept their new roles as longevity planners.
About the author
Ilana Polyak is a freelance journalist based in Massachusetts.
To comment on this article or to suggest an idea for another article, contact Chris Baysden, senior manager of newsletters, at Chris.Baysden@aicpa-cima.com or 919-402-4077.
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Elder Planning and Life Transitions After Retirement resources assembled by the Personal Financial Planning Division from both CPA and non-CPA thought leaders to help members better address clients' needs with transitions after retirement, aicpa.org
