Businesses are finding out it’s now a sucker bet to underestimate how long someone will live these days, and it can prove expensive to governments and pension funds, but it also provides individuals with an opportunity.
“In a multi-stage life, the idea of hitting a cliff-edge retirement at 65 and then living off an annuity is outdated,” Alistair Byrne of State Street Global Advisors told The Economist. “It’s not at all obvious that the traditional pension industry, which still sees life as a three-stage event, will survive this transition.”
1. The Majority of People Just Don’t Save Enough
Some 40% of Americans edge up on retirement age with no savings at in IRAs or 401(k)s. While some don’t earn enough to put money any aside, the real problem is that most badly underestimate how long they’ll live – and overestimate how long their money will last.
Often people just need the confidence that they really can afford to spend a little more on themselves
2. Lots of Retirees Spend Less Than They Can Afford
It seems counter-intuitive, but during a time in their lives when older people might be expected to spend freely, lots of them are piling up additional wealth.
It seems more and more people are relying less on pension plans and annuities and taking on the task of building wealth themselves. Should they die young? That money becomes a welcome relief for their heirs, but rising inheritance tax rates are sure to impact a families total holdings. That’s where better, targeted insurance comes into the picture and becomes critically important.
3. Looking Down the Road
While it hinges on how much someone has earned and if any family members are willing to care for them, one huge financial risk of getting older is whether or not end-of-life insurance care plans are in place. A study by the RAND Corporation says a typical 50-year-old American is more likely than not to end up in a nursing home, but 10% of those will be staring costs in excess of $150,000 in the face.
A utilitarian insurance market would ease much of that burden, but for the most part, end-of-life care insurance has yet to catch on. One major problem? Markets have to deal with what’s known as ‘adverse selection’ and that’s a scenario where such insurance only appeals only to those at highest risk of needing care.
4. Home is Where the Wealth is…
Most people successfully building wealth know the ultimate insurance is their home as much of the wealth accumulated by lower and middle-income households is a brick-and-mortar reality. An obvious, but underutilized, tool for building wealth as retirees age is a reverse mortgage. It lets homeowners exchange portions of a home’s equity for a lump sum of cash which can be reinvested Fewer than 49,000 reverse mortgages were sold last year in the U.S., and the vast majority of them were sold by just ten banks.
And innovations like Airbnb come into play as well as older hosts using the ‘home-sharing’ app say the additional income allowed them to stay in their home and realize additional income.
Have more Life Insurance questions? Read our article The Most Frequently Asked Life Insurance Questions