Emotions More Problematic for Retirement than Finances

People have big feelings about retirement.

Whether they fear losing a sense of purpose or worry about outliving their assets, those feelings can hold them back more than money, according to a recent report from the Financial Planning Association, which recommends planners help guide people. Currently, financial advisors overwhelmingly said clients are better prepared for retirement financially than they are emotionally. Some 50% of advisors said their typical client is “very prepared” monetarily, while just over 10% said the same about emotional readiness. About 60% said the average client is “somewhat prepared” financially, compared with about 46% emotionally.

Responses from 167 financial planners last year show the profession might improve by counseling people on retirement, FPA president Paul Brahim said in an announcement. “As more Americans near retirement, it’s imperative that financial planners do more than just manage money,” he said. “They also need to help clients deal with the emotional aspect of this new life phase.”

The Long View

Even with stable finances, there are reasons to be concerned. Some of clients’ biggest worries involve health care and longevity, FPA found. Long-term care is a major issue, and there are further implications for it with an aging population, data published last week by the Employee Benefit Research Institute show. About 40% of people in the workforce underestimate their potential future long-term care needs. Roughly 70% of those who turned 65 in 2022 will need long-term care services or support for basic activities like dressing, bathing, or running errands. It’s an issue that widely affects families, as adult children often become responsible for taking care of their parents, which in some cases can stress finances, work, and wellbeing.

“There’s a high probability that the older workers today are going to need long-term care,” said Bridget Bearden, research and development strategist at EBRI. Awareness of the need for long-term care varies by income and education level, as well as by experience, as younger people who have been dependent on care for health issues are more likely to anticipate needing long-term care in old age, according to EBRI. 

Data from EBRI show:

• 60% of workers have provided long-term care to someone, and 73% said they have someone in their life that they will likely have to care for, physically and financially.
• People underestimate the cost. On average, respondents said expenses would likely be less than $50,000, which they said could be covered by Medicare or Medicaid, or come out of pocket. 
• Estimated costs of care range from about $60,000 to nearly $300,000 per year, according to data from New York Life.

Less Money, More Problems. Long-term care insurance can be difficult for people to budget for, and it does not provide as much coverage as it used to. “The cost has been prohibitive for many in the middle-income strata. They’re not aware they will probably need care as they age,” Bearden said. “It’s expensive. It becomes more expensive as you age, like any insurance product does.”