The New Finance of Longevity

Planning Against The Inflation Risk

Three steps to help your clients shoot for the stars… but keep their feet on solid ground

by Aimee Johnson

Ms. Johnson is vice president of Advanced Markets and Solutions, Allianz Life. Visit

As financial professionals, helping our clients prepare for a fun and rewarding retirement is often the best part of our job. Hearing about their dreams and developing a strategy that can potentially make those dreams a reality is no-doubt a rewarding experience – whether that means planning for something grandiose like traveling the world or more family-focused goals like helping to fund grandkids’ college educations.

But as most of us know, retirement planning is about more than simply helping our clients realize their retirement aspirations. It’s equally important to help protect them from retirement risks. So before they shoot for the stars, we have to help make sure their financial footing is on firm ground. This means helping ensure they have the resources to cover basic expenses throughout their retirement, which is becoming an increasingly complex challenge as lifespans lengthen and people spend more time in retirement.

Prioritizing Expenses In Retirement

Prior to determining how to finance yearly vacations and regular golf outings, we should try to prioritize how their savings will cover necessities like housing, groceries, clothing and utilities. A good place to start this discussion is to address the topic of inflation.

Although it’s not the most exciting part of the planning process, the rising cost of living and how clients manage it in retirement is an important part of how they prepare for their financial future. Since the price of products and services can essentially double over a 30-year retirement, Americans need to consider how they will handle those increases when they are living on a fixed income, without the benefit of a paycheck that can help keep pace. Unsurprisingly, most people are concerned about how inflation can affect their retirement strategy.

According to the Retirement Risk Readiness study from Allianz Life Insurance Company of North America (Allianz Life), over half (57%) of all Americans are worried inflation will make their basic retirement expenses unaffordable, and 59% believe that the rising cost of living will prevent them from enjoying their retirement. But unfortunately, less than a quarter (24%) are discussing the impact of inflation with their financial professional, and only about two in 10 (21%) say they will use a financial product that allows for the opportunity for increasing income as a way to help address inflation.

So how can we help clients address these risks to their retirement security?

Step 1 – Have The Initial Discussion

The first step is having a specific conversation about inflation to make them aware of the risks, including connecting the dots between expenses and how they should expect to see those increase throughout their retirement. One area of significant concern is rising healthcare costs.

While clients may balk at addressing this complex issue today, careful planning, in partnership with their financial professional, can go a long way in helping to mitigate these risks tomorrow...

More than half (52%) of retirees said they view rising healthcare costs as one of the greatest risks to their retirement security, with nearly 40% of non-retirees sharing that concern about their future expenses. Perhaps even more alarming, both groups seem to have a poor sense of what their healthcare costs are now or will be in the future. Nearly half (48%) of current retirees said they have no idea of how much they currently spend on healthcare costs and more than six in 10 (62%) of non-retirees said they have no idea of how much they will spend on healthcare in retirement.

This has the potential to be even more problematic as a quarter of respondents who retired early said they did so due to healthcare issues and more than a third (34%) of those who have yet to retire say healthcare issues are one of the most likely reasons they may have to retire earlier than expected.

Step 2 – Offer Potential Solutions

We all need some help in managing rising costs while in retirement. Finding an increasing retirement income solution that accounts for inflation can be complex, but there are some financial products, like certain annuities, that can provide the opportunity for increasing income through either built-in or optional riders available for an additional cost. Not only can these products help address the rising cost of living, but they can also provide a more hands-off approach that potentially minimizes the amount of work on the part of the financial professional as well as the client for addressing inflation.

Step 3 – Address Cognitive Decline

Reducing the work that goes into managing rising costs in retirement is important and leads directly to step three in this process – addressing the potential impact of cognitive decline.

When talking about inflation, your client might push back and ask “why now?” since they’ll likely want to focus on more fun or aspirational planning topics. But it’s important to have this conversation as soon as possible as it will be much more challenging for them to effectively manage inflation down the road with no specific strategy in place.

It’s important for your client to appreciate that rising costs can also bring more complexity, which is particularly concerning as we age and our cognitive ability declines. It is already challenging to establish and maintain reliable sources of retirement income. The additional pressure of managing increased expenses as they age can pose a risk to your client’s financial security if they don’t have a strategy for increasing income opportunity built in to their retirement strategy.

It’s important to start the conversation with clients now to get them thinking about how longer lifespans, inflation, and cognitive decline can combine to put their retirement security at risk. While clients may balk at addressing this complex issue today, careful planning, in partnership with their financial professional, can go a long way in helping to mitigate these risks tomorrow.