Solo-Agers Disconnect
by P.E. Kelley
Mr. Kelley is managing editor of Advisor Magazine. Connect with him at pkelley@lifehealth.com.We tend to envision retirement with images of joy, security and family. From the eloquence of inter-generational hierarchy to the reliability of ancestral connection, there is an altogether mystical presumption of continuance and security. Indeed, the very concept of family.
Today, however, there are conditions emerging that challenge this perception of aging. More people today are entering retirement unaccompanied… or simply alone. For various reasons — divorce, widowhood, cognitive decline — many enter retirement wholly disconnected from the traditional expectation of what we should expect.
We are witnessing an age of solo-agers, and recognizing this the Society of Actuaries Research Institute and the Women’s Institute for a Secure Retirement (WISER) have partnered to help people, many alone and disengaged from the traditional structures of retirement and security, with decision-making on a wide range of aging issues.
Moreover, the Society Of Actuaries has, in response, developed a thorough study, The Solo-Agers Decision Guide Resource Series, to examine the challenges of this emerging threat.
Anna M. Rappaport, FSA, MAAA, is a past president of the Society of Actuaries and chairs its Committee on Post-Retirement Needs and Risks, and Steven Siegel is a Senior Practice Research Actuary at the Society of Actuaries. We asked them some pointed questions about the emergence of these wholly new issues that challenge ‘solo-agers’ during a time that they should normally expect joy and happiness.
PEK: The study, Managing Your Finances, identifies that only about 36% of pre-retirees, and only 57% of retirees, have a plan for ‘how much money they will spend in retirement.’ Within this research, how can advisors help close this gap?
AMR & SS: Advisors can help close this gap by providing solo agers with a deeper understanding of their financial situation both now and in retirement. That includes evaluating exactly how much money they have, how much they’re spending and what their long-term financial needs may look like. Advisors can also connect them with the right resources or professionals who can further help them manage finances in retirement.
PEK: What is the real impact of some of the more prevalent causes of financial difficulties faced by ’solo-agers’: divorce, widowhood and cognitive decline?
AMR & SS: Divorce: One of the most significant financial challenges following divorce is that solo-agers often end up with fewer assets but nearly the same level of expenses. For example, women often choose to keep a home they can no longer afford or trade away long-term income sources, like a pension, in the settlement.
Widowhood: For many widows, expenses decrease far less than income does. Additionally, the surviving spouse may not have been the primary financial decision-maker, leaving them without the knowledge and skills needed to manage finances.
Cognitive Decline: As cognitive abilities decline, many individuals may struggle to manage day-to-day finances. Additional support may be needed to help manage finances.
PEK: How do you help define someone’s real income in retirement, taking into account fixed-income, income that may increase and sources asset draw-down?
AMR & SS: Real retirement income includes Social Security, any income from defined benefit plans and income generated from investments. People also draw down their savings over time and are required to take minimum distributions from IRAs and defined contribution plans based on their age and tax laws. Social Security is indexed for inflation, which helps maintain purchasing power.
PEK: How do retirees, and pre-retirees for that matter, develop a picture of income adequacy within their asset portfolio? How can they know if they have enough?
AMR & SS: Retirees and pre-retirees need to think long-term. Too many people plan only for the near future and miss how costs, markets and longevity change over time. Start by comparing expected assets and income against spending to see if they are in balance.
PEK: The notion of ‘reducing expenses’ becomes quite important in retirement, perhaps critical. How can retirees begin to contemplate this and then develop a plan to do so when necessary?
AMR & SS: Reducing expenses can be critical in retirement. Housing is often the biggest expense and options like moving to a lower-cost area or downsizing can make a significant difference. Other strategies include eating out less, carefully evaluating health insurance costs, avoiding unnecessary purchases, and, in some cases, moving in with a family member.
PEK: What are the real numbers regarding ‘financial fraud’ and how do seniors, especially those who are isolated and dealing with a decline in management ability, stay aware of the dangers?
AMR & SS: Financial fraud can come from many sources, sometimes even family members or caregivers, and often via email, phones calls or other scams. Organizations like AARP and various government agencies regularly publish warnings and guidance on common scams, such as the “sweetheart scam” or “grandchild scam.”
To stay safe, seniors should take precautions such as avoiding calls from unknown numbers, not clicking on suspicious links and never sharing bank accounts or personal information with unverified sources.
PEK: You discuss the notion of appointing a financial advocate to help guide seniors through their retirement. how does this actually work in real life?
AMR & SS: Identify someone you trust to help manage your finances if you are unable to do so yourself. This often starts with designating a power of attorney (POA) to handle legal and financial matters. If the POA is not available for day-to-day support, a financial advocate can step in to assist with tasks such as bill payments, investment decisions and ongoing financial planning. There are also firms and professionals who specialize in this type of support.
PEK: Your study advises clients to ’simplify their finances’. What are the keys to actually doing this?
AMR & SS: Simplifying finances can make retirement management much easier. Key steps include consolidating multiple bank or investment accounts and using automatic payments for regular bills. It’s also important to ensure that your power of attorney or financial advisor has access to these accounts if you become unable to manage them yourself.
