The stadium rock band Queen recorded that hauntingly beautiful song for the movie Highlander, entitled Who Wants To Live Forever? While it may not be forever, Americans today are certainly living longer than their ancestors. It is now crucial to help your clients find ways to fund those extra years and ensure they have quality of life, not just quantity.

Most individuals view risk and risk management as protecting themselves and their families against a loss, such as property, income or life. Longevity risk, however, comes from having too much of something — years of your life.

It may seem obvious, but the older one gets, the older one is likely to get. The accompanying chart shows that when an individual is 65, the chances of him or her living into his or her 90s is better than if he or she was younger.

If your client started working and saving for retirement at age 20, took early retirement at 50 and lived until 79 (the national average), that person could easily take as many years to spend that nest egg as he or she did to build it. Odds are good, according to the chart above, that he or she will live into the mid to late 80s. But the longer the person lives, the greater the risk of that person outliving his or her money.

That's where you, as the client's advisor, come in. Planning how to make that money last as long as the client does, can be complex. For example, if your client wants to begin taking withdrawals from her IRA at age 59.5 years, should you? Individuals must take minimum IRA distributions beginning at age 70.5 years, but there is a risk of being pushed into a higher tax bracket. For clients, deciding which assets to tap and when, then dealing with the subsequent tax and investment consequences, can be overwhelming. You may need to help them reallocate or even liquidate investments to provide cash flow for daily living expenses, and avoid as much in taxes as possible and account for potential market downswings.

Strategies for repositioning the portfolio and liquidating assets can take years in order to avoid high tax bills. But, continually monitoring and maintaining clients' portfolios, advisors can sustain the diversification and integrity of their accounts. It is important that the proper risks are being taken, depending on the type of investments within each portfolio. The type of investments a portfolio is involved with will also determine the time it will take to liquidate. Thus, a proper liquidating strategy should be in place, while this account is settling.

Longevity risk also carries the increased risk of disability in terms of caring for oneself. Offering a retirement planning review helps our clients by giving them an income analysis of their retirement savings. The income analysis recreates their projected monthly income for when they have entered into retirement. This provides the means in which our clients can properly plan their retirement and extend their financial life.

Case in point: A 2009 study by Genworth Financial showed that the average cost for a private nursing home room increased 4.72% from 2008 to 2009; that's $74,095 a year or $203 a day. Costs of Medicare-certified in-home care weren't spared either, rising 35.6% in the past year. Many people mistakenly assume that Medicare will pay for nursing home stays. It does not. Long-term care insurance can range from nursing level only to complete in-home and companion care. Your clients should consider purchasing long-term care coverage while in their 40s or 50s to secure a reasonable premium.


J. Graydon Coghlan, is President & CEO of Coghlan Financial
Group, Inc. He can be reached at (800) 884-5121 or by email.
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