Uncertainty in Aging: Are Retirees Prepared to Face the Risks?

By Esther Peterson

Retirement Section News, September 2022

Retirement planning generally focuses on the years leading up to retirement and one’s personal assessment of retirement readiness. We have evidence through highly respected research reports regarding how individuals think and feel in anticipation of retiring. But what happens several years into retirement when basic parameters change … perhaps very suddenly? When physical or mental decline force changes in how retirees live, where they live, and why they get up each morning? What if they are unable to drive anymore or lose their best friends? Will these retirees have planned in advance to deal with those changes, or will others make decisions for them in response to an emergency and with few if any attractive options?

The “Late-in-Life Decision Guide,” issued by the Society of Actuaries (SOA) in a joint effort with Financial Finesse, speaks to retirement planning for needs of individuals later in life. It gives us practical strategies to plan for the surprises at a time in life when we can expect the unexpected.

Every choice we make as our lives go on narrows the span of possible future outcomes. The Guide can help with assessing choices that anticipate future needs and increase the chance that retirees can enjoy a higher quality of life in later years. The information provided is helpful to individuals and useful for organizations that support retirement planning—human resource (HR) departments, retirement plan administrators, financial service companies, advisors, educational organizations, and others.

The Guide focuses on four main areas of late-in-life decisions, lays out common issues, and suggests resources to help individuals plan and make decisions. The four areas are health care, housing and transportation, managing finances, and building a support network.

This article provides personal insights from interviews with three retirement professionals and experts pertaining to the Guide. Why does it matter and how can it be used effectively? We thank Carol Bogosian, Anna Rappaport, and Mark Shemtob for sharing their expert perspectives and helping us gain a better understanding.

Interview with Carol Bogosian

Esther Peterson (EP): Are retirement planning issues different for people who are about to retire and those who have been retired 15 years or more? How and why?

Carol Bogosian (CB): I have often spoken of retirement considerations in three broad categories: financially, socially, and spiritually. And these differ from near retirees through later years in retirement such as retired 15 years or more. What do I mean here?

We often discuss and analyze if near-retirees are financially ready to retire. The key issues may be around “have I saved enough, can I develop enough income to cover my expenses, should I work longer and claim Social Security and pensions later?” For someone already retired, these issues are no longer relevant. Instead, the issues may be around “am I withdrawing too much or too little from my assets, am I covering my basic expenses now and can I spend more on discretionary items, should I give money to my family as needed or should I preserve my assets for my later life, how much and when will I need additional medical or life care and will my current housing be right in my near future?”

Socially means developing a network of friends, family, caregivers, etc., to support our human needs to connect with others throughout our natural lives. For near-retirees, these often come from current social sources as well as longtime friends and extended family and new activities pursued in years approaching retirement. However, as one ages, these social contacts may move away, become less relevant, or pass away. Developing new contacts while in retirement will depend on one’s capability to extend into new social circles and may wane as health issues or care needs arise.

Spiritually means connecting with a concern or cause that provides satisfaction that one is a productive, valued member of society. Near-retirees may find this in their work, volunteer efforts, religious activities, or family connections. For later retirees, these activities may still provide satisfaction but more often may need to be replaced as they are no longer working or need additional activities to fulfill the extended time now available in their daily lives.

EP: Do you believe that there are important decisions that are often forgotten? Please elaborate.

CB: I would say ignored may better describe these decisions. First, preparing and updating legal documents that ease the passing of control while incapacitated or assets upon death are often ignored. Wills, powers of attorney, and trusts are the common documents needed. However, either people do not believe they need them or are unwilling to face their potential demise or incapacity and choose among family or friends to be named for handling their affairs.

Second, the need to consider the appropriateness of current and future housing needs is ignored. Today, family or friends may live in other geographical locations that complicate their ability to care for their aging family members. The style of house, such as multiple floors, entries that are difficult to navigate, locations that do not support aging, etc., require careful analysis and a willingness to make changes as people age. However, many retirees express an interest to just age at home in a residence that may not be appropriate for doing so.

Last, having difficult discussions with family and friends that inform them of their chosen roles or duties is often an ignored responsibility. Sharing key information on housing, finances, health care, and wishes is not done. Privacy, a fear of their loss of independence, and family dynamics on caregiving roles often keep aging family members from having these difficult and sensitive conversations.

Carol A. Bogosian, ASA, is a retired actuary. She can be contacted at cbogosian@aol.com.

Interview with Anna Rappaport

EP: The Guide discusses managing finances later in life. What are your perspectives on good strategies and the role of a daily money manager?

Anna Rappaport (AR): I will offer some personal perspectives. Good strategies for late in life often mirror good strategies at any stage of life: Invest wisely, don’t spend what you can’t afford, plan for the longer term, and keep things simple. If an individual is totally healthy and has no cognitive issues, money management does not change much with increasing age, except that the time horizon shortens.

But many people start to experience limitations later in life, so it is important to have a plan for who will manage money later in life if you are no longer able to. The Society of Actuaries Research Institute funded research underlying, Thinking Ahead: Informing the Design of a Roadmap for Keeping Your Money Safe as You Age. That project offers a process for thinking through the issues related to a shift in money management, and it offers tools to help the consumer. The implementation tools were funded by the AARP. The strategies include simplifying your money management, preparing the situation so that a designated person can help you when the time comes, choosing someone to help, and turning over management as needed. A turnover can be in steps. My mother went from full independence to having someone periodically check over what she did as she paid bills and balanced her checkbook. The next step was that they did it together, then the helper did it for her, and finally my brother took over.

One of the first steps in a plan is figuring out when it is important to seek help with daily money management. The SOA report A Conversation on Dementia and Cognitive Decline documents the challenges in making the transition and the consequences of waiting too long. People who do not have family members to help will still need help. Financial advisors offer help with investment management and important decisions, but they generally do not write checks and balance checkbooks. In my mother’s case, her accountant had an employee who served as a daily money manager.

In doing the research for the Society of Actuaries late-in-life projects, I encountered the American Association of Daily Money Managers (see aadmm.com). I recently met and had a chance to talk with a daily money manager (DMM). I have learned the following:

• The Association offers a certification program, continuing education, regular meetings for professionals to exchange information, a liability insurance program, and has ethics principles.
• Some DMMs were accountants or CPAs, and many were people who switched into this field as a midlife career change. Most were not accountants.
• Daily money management fits well with a flexible work schedule and phasing down into retirement. That is what my friend did.
• My contact works independently, and her impression was that many DMMs do the same, but that some are part of larger firms. I have no data about this. My friend got business through contacts and word of mouth.
• My friend said she was paid by the hour when she did this work. An AARP article says DMMs earn $75 to $150 an hour. Another article said they are paid between $35 and $100 per hour.
• Some DMMs are supervised by a power of attorney.
• Common financial tasks performed include:
• Writing checks and paying bills
• Balancing checkbook
• Budgeting expenses
• Preparing information for tax preparation and interacting with tax return preparer
• Interaction with financial advisor

My friend indicated that she provides services like those that might be provided by a concierge, if the power of attorney or other client contact requested them. For example, she assists with shopping, doing errands, going with people to the doctor if requested to do so, helping them file health insurance claims, etc. She also watches over caregivers to see that they are doing their jobs and not stealing money. She has observed some difficult situations. Her work overlaps with the services that might be provided by a health advocate.

To put the role of a daily money manager in perspective, the discussion above focuses on meeting the needs of retired individuals who are unlikely to be independent. The functions performed by a DMM are often performed by a family member (such as an adult child) if one is available to help. In the SOA 85+ research preliminary interviews, it was often the case for people in assisted living. A daily money manager would be particularly important in the case of solo agers or in the case of individuals where no capable adult child is available. The daily money manager may also be hired by an adult child (who could be the power of attorney) if that person does not have time or is not nearby.

Daily money management services might also be performed by an employee of a financial advisor or accountant or a trust department in a financial firm or bank. For very wealthy persons, the types of functions performed by the DMM could be done by a family office. The DMM situation is different in that the DMM is probably only used when the individual is not capable of managing things for themselves.

EP: The Guide also discusses housing and transportation. Do you have suggestions from personal experience or your observations?

AR: I do. I recently entered a Continuing Care Retirement Community. I had studied CCRCs over the years and thought I knew quite a lot about them. I will share here a few observations that I learned through the process of evaluating some communities for myself and in spending a few months in a CCRC.

First, the objective comparisons that an individual should make of communities can easily miss some important points. I was very aware of the need to think about facilities, what care is offered, contract terms, financial stability, price, activities, etc. What I did not realize is how much the culture and personality of different communities differ. The culture and personality are important in answering the question “Will I be happy here? Do I feel that I fit well in this community?” In looking at three different communities in the same city, I found a radically different answer to these questions based on my personal situation. All three of the communities were well respected and stable. They appealed to well educated people who had previously had stable careers. In talking to other residents where I am now, they had similar reactions to mine. A few of the differences that surfaced:

• One of the communities is resident-driven and the residents (who are volunteers) run most of the activities and collaborate a great deal with management. This is an unusual model, but it keeps the residents very engaged.
• Two of the communities had personal art (or artifacts) in the hallways near apartments. This made every floor different and made the building seem much more like home.
• One of the communities had a bar and liquor license. The bar was a place for socialization before dinner. The other two had no bar or liquor license. For me, the idea of a bar was a negative—I wanted to participate in the social life of the community, but I did not want to see it centered in a bar.
• One of the communities had a dress code for dinner that required fancier dressing (and no sneakers in the dining room.) This was a turnoff for me (and some others I know) but it could be a big plus for people who like to dress up.
• Each of the communities is in a different neighborhood. In each neighborhood, there are residents in the community with ties to the neighborhood that make it a better fit for them. One of my friends is at a community that is a few blocks from where she lived for most of her adult life. When she made the transition to the community, she found several people she knew but had not been in touch with for years.

These probably do not sound like big differences, but the matter of culture and personality can make a big difference in how happy the residents are. In addition to the question of culture, I looked for a match with the things I want to do. Two of my important interests are art and water aerobics. I found a community with friends, a culture I love, a great creative arts facility, and a swimming pool with water aerobics classes. For me, these things all mattered.

The second thing I want to share are observations about timing and moving in. I decided to move in when I did after feeling “I could be happy there now.” It was several years earlier than I had expected to make such a move and I now think moving in earlier than when it is necessary can be a very good idea. My experience since the move was key in my thinking about this. For example:

• I believe that purposeful activities are very important, and I have a variety of them that I have been pursuing for many years. The community offers the chance to add to those activities by pursuing my existing interests or developing new ones within the community. For example, I am developing a group of sketching friends and we are sketching in the community. The resident-driven structure allows for a wide variety of purposeful activities and resident involvement. This engagement can help keep people healthy and purposeful.
• I am building a network of friends. If I develop limitations and need to move to assisted living or nursing care, I will have friends in the community who can continue to provide social engagement. If I were to enter a community when I need care, that would be very different.
• The community offers good opportunities to help me maintain and improve my health. I will probably get healthier food than I would have if I was living alone, since food preparation is not my favorite activity. The community offers a range of exercise classes—in the gym and in the pool—suited to people with limitations, and I have found that it makes it easier to exercise regularly. The offerings in the gym and exercise program are a much better match for me than a gym out in the community would be (I have mobility issues).

Of course, in any CCRC, there is a health requirement for entry. Waiting too long may mean that an individual will no longer be eligible. And, for an individual who is aging and who will ultimately need to downsize, it is better to do it earlier than later (regardless of when you ultimately move). As mobility and energy decline, downsizing gets more difficult.

These considerations should apply in many situations where a community is a good fit.

Anna Rappaport, FSA, MAAA, serves as chairperson of the Committee on Post-Retirement Needs and Risks. She can be reached at anna.rappaport@gmail.com.

Interview with Mark Shemtob

EP: Are retirement planning issues different for people who are about to retire and those who have been retired 15 years or more? How and why?

Mark Shemtob (MS): At retirement it is important to have a comprehensive plan in place. However, it is just as important to reassess the plan periodically as well as when there is a significant change in one’s situation or circumstances.

How are things different 15-plus years after retirement?

1. Changes in health: One needs to reexamine medical care options as well as a plan for long-term care (if inadequate LTC insurance is in place).
2. Changes in cognitive abilities: One may not be as comfortable managing their expenses and assets. It may be time to ask a trusted advisor or family member for help. Simplifying finances by reducing the number of investment accounts and using automatic bill payments should be considered.
3. Likely no longer working at all: If applicable, this might impact the amount you have to spend in the future.
4. Possible loss of a spouse or partner: This will reduce some expenses but also may impact income derived from Social Security, a pension, or annuity.
5. Updated value of nest egg: Based on expected future life span plus some years for safety, an analysis is needed to determine whether you will have the income to support your future needs.
6. Changes in those being supported (parents or children): Some face this expense at retirement, but a few still need to consider it 15 years into retirement.
7. Changes in legacy desires: At retirement, leaving a legacy may or may not have seemed important but 15-plus years later this could have changed one way or the other. This needs to be built into the financial plan.
8. Relocation or downsizing: The first 15 years of retirement are usually very active. However, this tends to change. Are you living in a place that is conducive to your health and lifestyle? Should you be closer to your children?

Of course, some of these items will not apply to your situation.

EP: Why is this project important?

MS: This project can help to bring focus on the needs of retirees in the later stages of retirement. The challenges and concerns faced by those in their 80s are different than those in their 60s. Whereas those in the earlier stages of retirement can enjoy independence (and may have others still dependent on them), that changes later in retirement.

Appreciating the impact of these changes should help earlier-stage retirees to plan for the transition. In addition, a greater awareness of these challenges should cause both government and industry to provide services and products to satisfy the needs of this population. Examples being protection against financial scammers and creation of more affordable long-term care products.

Mark Shemtob, CFP, FSA, MAAA, provides financial consulting services at markshemtobfinancialplanner.com. He can be reached at mshemtob@abarllc.com.

Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the newsletter editors, or the respective authors’ employers.

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Esther Peterson, ASA, MAAA, EA, is a consulting actuary for Milliman, Inc. Esther can be contacted at esther.peterson@milliman.com.