age-related financial risks

Top 10 Age-Related Financial Risks

With your financial advisor, you planned for retirement by determining your portfolio risk level, income needed, and legacy goals at every stage of your life. Now that you are retired, your risks are more than your portfolio investments. Here’s how to determine who has age-related risks, what your age-related risks may be, and planning steps to take for these age-related risks.

Who has Age-Related Financial Risks?

The typical investor with a portfolio to manage is an older adult – the average age is 63 years old. Among your peers, approximately 80% of people over age 50 in the US suffer from one or more chronic illnesses like diabetes or high blood pressure with the accompanying doctor appointments and medications. You may be more likely to experience medication errors and negative side effects.

Additionally, the frequency of dementia doubles every five years starting at age 60, and about half of older adults have some form of cognitive impairment by the time they reach their mid-80s. Finally, old age can take a toll on your emotions as well. According to the CDC, the most common “disease” among older adults is loneliness, as we have all experienced during the COVID-19 pandemic.

All this leads to experiencing “peak wealth” just as you are starting to encounter health concerns that may drive future financial decisions about your investment portfolio. And portfolio risk, while important, is only one kind of risk that confronts seniors.

woman looking out the windowWhat are Age-Related Financial Risks?

Numerous financial risks increase as you age and can ruin any financial plan, no matter how well your portfolio risks are aligned or managed. These are called “age-related financial risks” and a shortlist of these risks includes:

  1. Healthcare costs. Healthcare costs include more than insurance such as out-of-pocket expenses. These additional costs may include secondary insurance, premiums, co-pays, and home care. Since insurance and Medicaid don’t pay for 100% of these expenses, your retirement funds will need to cover these costs.
  2. Long-term care costs. Most people want to die at home, but many will require 24/7 care late in life at an average cost of $25 per hour which is over $200,000 annually. Assisted living communities in most metropolitan areas cost $50,000 or more annually, while a nursing home bed can easily cost over $100,000 on an annual basis – shifting how you use your investment portfolio and other financial assets as you age.
  3. Gaps or errors in estate plans. The absence of wills, trusts, power of attorney, and other legal documents can have severe financial consequences. Medicaid spend-down needs to be planned for too.
  4. Dementia. The percentage of people with Alzheimer’s increases with age: 3% of people age 65-74, 17% of people age 75-84, and 32% of people age 85 and older. Alzheimer’s and all forms of dementia involve a long decline from mild cognitive impairment to moderate and then severe stages. A financial plan is needed to cover the increasing cost of care in the severe stages.
  5. Behavioral conditions. Traits like impulsiveness, loneliness, gullibility, and paranoia typically increase with age and their effects on financial decision-making can be devastating. Learn the signs of elder financial abuse.
  6. Lack of transparency in financial organization. Too often when an older adult dies, the surviving spouse and other family members have little knowledge of how to find and access money, investments, and other valuables. Creating a plan, writing it down, and sharing it reduces age-related financial risks for your loved ones.
  7. Chronic illnesses. Chronic illnesses like heart disease or diabetes tend to preoccupy, weaken, and distract seniors and their family caregivers, so any of these conditions can compromise financial decision-making.
  8. Medication errors and side effects. Three-quarters of people ages 50-64 use prescription drugs, compared to 91%of those age 80 and older. Many medications have side effects which can negatively influence behaviors and cognitive capabilities which impact financial decisions.
  9. Elder caregiving responsibilities. Many older adults provide financial assistance to spouses, parents, or other elderly relatives, which in turn impacts their own retirement financial plan. For example, when a caregiver lives near their loved one, they spend an average of $5,500 a year on caregiving-related expenses. If they live further away, the average jumps to $8,700 annually.
  10. Driving accidents. According to the CDC, older drivers are more likely to be severely injured or harm others and property in car crashes, making driving accidents more costly and another age-related financial risk.

What Is Your Next Step with Age-Related Financial Risks?

On average, most older adults are interested in controlling healthcare costs, getting help for spouses or themselves, preventing financial exploitation, avoiding being a burden on their children, and postponing dementia.

Together, you and your financial advisor need to pay as much attention to age-related financial risks as you are to your traditional portfolio risks. Ask your advisor for assistance beyond core financial advice and get help with health-related expense planning.

The next time you meet with your financial advisor, make sure your portfolio covers all of your age-related financial risks. Together, develop a comprehensive financial plan that addresses your ability to pay for your preferred retirement lifestyle, as well as your survivorship, healthcare, housing, and legacy goals.

Credit: CEO of Whealthcare Planning Chris Heye, Ph.D.