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

When 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 all 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.

·        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]

·        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]

·        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.[ix] Another 3% suffer from related illnesses, like vascular or frontotemporal dementia. In addition, 15-20% of adults over 65 suffer from mild cognitive impairment.[x] This implies that 25%+ of a typical wealth management firm’s clients are at risk for poor financial decision-making or exploitation.

·        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.

·        Caregiving 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.[xiii]

·        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.

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

·        Gaps or errors in estate plans. Only about one-third of adults in the US have a will[xvi] 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.

·        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.[xviii]

·        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 judgement and decision-making.

·        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]

This article is excerpted from "The Importance of Managing Life-Stage Risks for an Aging Population" by Chris Heye, PhD, appearing in the September 2021 edition of the Journal of Financial Planning.

Chris Heye is the CEO and Founder of both Whealthcare Solutions, Inc. and Whealthcare Planning LLC. He is a regular columnist for the Journal of Financial Planning where he writes about technology, longevity, and financial wellness.

Notes: 

[i] Himmelstein, David, et al. 2019. “Medical Bankruptcy: Still Common Despite the Affordable Care Act.” American Journal of Public Health 109 (3): 431–433. https://pnhp.org/docs/AJPHBankruptcy2019.pdf.

[ii] US Centers for Disease Control and Protection, National Center for Health Statistics, https://www.cdc.gov/nchs/health_policy/adult_chronic_conditions.htm

[iii] U.S. Centers for Medicare & Medicaid Services https://www.healthsystemtracker.org/chart-collection/u-s-spending-healthcare-changed-time/#item-usspendingovertime_3

[iv] GoodRX, “The 20 Most Expensive Drugs in the US” https://www.goodrx.com/blog/20-most-expensive-drugs-in-the-usa/

[v] The Mesothelioma Center, “High Cost of Cancer Treatment”, https://www.asbestos.com/featured-stories/high-cost-of-cancer-treatment/

[vi] U.S. Department of Health & Human Services, https://acl.gov/ltc/basic-needs/how-much-care-will-you-need

[vii] Genworth “Cost of Care Survey”, https://www.genworth.com/aging-and-you/finances/cost-of-care.html

[viii] Wall Street Journal, ”Baby Boomers’ Biggest Financial Risk: Cognitive Decline” https://www.wsj.com/articles/baby-boomers-biggest-financial-risk-cognitive-decline-11622942343

[ix] 2018 Alzheimer’s Association “Facts & Figures”

[x] Ibid

[xi] The American Heart Association, https://www.heart.org/idc/groups/heart-public/@wcm/@sop/@smd/documents/downloadable/ucm_472923.pdf

[xii] Susan G. Komen https://www.komen.org/breast-cancer/risk-factor/age/

[xiii] “The Journey of Caregiving: Honor, Responsibility and Financial Complexity”, Merrill Lynch study 2017

[xiv] Stanger, Tobie. 2015, September 29. “Financial Elder Abuse Costs $3 Billion a Year. Or Is It $36 Billion?” Consumer Reports. www.consumerreports.org/cro/consumer-protection/financial-elder-abusecosts--3-billion-----or-is-it--30-billion-.

[xv] “True Link Financial Report on Elder Financial Abuse 2015.” Available at truelinkwordpress-assets.s3.amazonaws.com/wp-content/uploads/True-Link-Report-On-Elder-Financial-Abuse-012815.pdf.

[xvi] Caring.com “2021 Wills and Estate Planning Study”, https://www.caring.com/caregivers/estate-planning/wills-survey/

[xvii] Caring.com 2017 Survey, https://www.caring.com/caregivers/estate-planning/wills-survey/2017-survey/

[xviii] See for example: Gamble, Keith, Patricia Boyle, Lei Yu, and David Bennett. 2015. “Aging and Financial Decision Making.” Management Science 61 (11): 2603–2610; Lichtenberg, Peter, Laurie Stickney, and Daniel Paulson. 2013. “Is Psychological Vulnerability Related to the Experience of Fraud in Older Adults?” Clinical Gerontologist 36 (2): 132–146; Kircanski, Katharina, Nanna Notthoff, Doug Shadel Gary Mottola, Laura Carstenten, and Ian Gotlib. 2016. “Heightened Emotional States Increase Susceptibility To Fraud In Older Adults.” Stanford Center on Longevity; Weiner, Anthony, Christopher Heye, Lee Baer, Maurizio Fava, and Janet Sherman. 2017. “Cognitive Function as a Proxy of Financial Decision Making in Older Primary Care Adults.” Alzheimer’s and Dementia 13 (7): 1558–1560.

[xix] AgingCare, https://www.agingcare.com/articles/polypharmacy-dangerous-drug-interactions-119947.htm

[xx] The Insurance Institute for Highway Safety (IIHS), https://www.iihs.org/topics/older-drivers