11 Health and Longevity-Related Risks That Can Wreck Any Savings or Investment Plan

When most financial advice professionals talk about “risk”, they are usually referring to the risks associated with a portfolio of investments. But longer lifespans and rapidly accelerating health care costs have dramatically changed the nature and severity of the financial risks faced by most adults.

Investment portfolio volatility is now only one class of risk - and arguably not even the most consequential. Health and longevity-related risks constitute a major threat to the financial security of adults, especially those over 50. These risks increase with age and can ruin any savings, investment, or financial plan, no matter how well portfolio risks are measured, aligned, or managed.

A good financial planner should strive to protect their client from potential financial risks, not just investment portfolio volatility. Here are 11 health and longevity-related threats that financial advice professionals should be monitoring to more effectively safeguard the financial security of their clients and families.

1. Health Care Costs

Approximately 80% of people over 50 in the US suffer from one or more chronic illnesses like diabetes, cancer, or high blood pressure.[ii] Per capita spending on health care in the US has increased roughly six-fold in inflation-adjusted terms since 1970.[iii]It is not uncommon for drug treatments alone to cost over $25,000.[iv] Sixty percent of cancer patients spend more than $5,000 out of pocket to treat (a single) cancer, with 20% spending more than $20,000. This does not include travel expenses, lost wages, or in-home care expenses.[v]

2. Long-Term Care Costs

Most adults will need at least 3 years of long-term care.[vi] Many people want to die at home, but most of them will require 24/7 care late in life at an average cost of about $25 per hour, or $18,000 per month. Assisted living facilities in most metropolitan areas cost $50,000 a year or more, while a nursing home bed can easily cost over $120,000 annually.[vii]

3. Cognitive Decline

The Wall Street Journal recently published an article declaring cognitive decline “Baby Boomers’ biggest financial risk”.[viii] An estimated 10% of adults over 65 have Alzheimer’s. Another 3% suffer from related illnesses, like vascular or frontotemporal dementia. In addition, 15-20% of adults over 65 suffer from mild cognitive impairment. This implies that 25%+ of a typical wealth management firm’s clients are at risk for poor financial decision-making or exploitation.

4. Illness or Death of Income Earner

While most people are living longer, some still get very sick or die, while they are earning a substantial salary. The average age of a first heart attack is 65 years for men[xi], the median age of a diagnosis of breast cancer is 63[xii], and early-onset dementia can occur while a person is in their 50s.

5. Caregiver Responsibilities

Many adults provide caregiving assistance to parents or spouses, and taking care of a relative can be very expensive. Almost 90% of caregivers act as financial coordinators (i.e., help with paying bills, managing investments, etc.) while nearly 70% provide direct financial support.

6. Lack of Transparency in Financial Organization

Too often when someone dies, family members don’t know how to access the deceased’s financial account information, hard assets (e.g., collections, stock certificates, etc.), or other personal property. Poorly organized finances often force surviving family members to spend considerable time and energy cleaning up the mess. This can result not only in financial losses but also high professional service fees and family discord.

7. Financial Exploitation

Estimates of the costs of financial exploitation range from $3.7 billion to over $35 billion per year. Older adults appear to be especially vulnerable, with roughly 37% of seniors having experienced financial abuse in any five-year period.[xv]

8. Gaps and Errors in Estate Plans

Only about one-third of adults in the US have a will and only about half have appointed a legal power of attorney.[xvii] The absence of wills, trusts, powers of attorney, and other legal documents threatens financial security and jeopardizes successful inter-generational wealth transfers.

9. Behavioral Health

Traits like impulsivity, loneliness, gullibility, and over-confidence are not often associated with dementia, but their prevalence often increases with age and their effects on financial decision-making can be devastating.

10. Medication Errors and Side Effects

The average older adult in the US takes four or more prescription drugs each day, and 39% take five or more.[xix] Taking multiple medications simultaneously can lead to potentially dangerous drug interactions and creates exposure to many different side effects, including those affecting judgment and decision-making.

11. Driving Accidents

For older adults, car accidents are much more costly, both physically and financially. Adults aged 65-69 are almost twice as likely to die if they are involved in a car accident than drivers or passengers in their 40s. Adults over 80 are about 5 times more likely to die.[xx]

There is a lot to think about in this piece. If you have questions about how to effectively safeguard your financial security or those of a family member or friend, please give me a call at 480-513-1830, or schedule a time to chat via my calendar, Chat With Charles.

Charles

Source: Whealthcare Planning LLC/Whealthcare Solutions, Chris Heye, PhD. September 2021