Transcript generated by AI. It may contain errors or inaccuracies.
Everyone and welcome to Insider Insights. I'm Tina Beckwith. Now, for years retirement planning has centered on savings, markets, and inflation. But new research from the LIMRA Retirement Income Institute suggests that consumers' greatest concerns aren't financial in the traditional sense. They're health related.
Rising health care costs, chronic illness, and long term care needs are now seen as one of the biggest threats to retirement security.
Joining me today is Chris Heye, PhD, a fellow at the LIMRA Retirement Income Institute, and author of The Growing Influence of Health Risks on Retirement Security.
Chris, welcome. Thank you for joining us today.
Great to be here.
Well, let's just dig into it. Yeah. I understand most people think retirement risk is all about the stock market.
But you're saying one of the biggest risks might actually be our own decision making. What made you start thinking about retirement that way?
Yes. Well, as we know, retirement's getting a lot longer. Lifespans are are are extending. And, you know, for many of us, that's kind of the good news and the bad news.
We all wanna live longer, but living longer these days can be very expensive. I started thinking about the importance of decision making after I had several personal experiences with older adults who were struggling with sound decision making. I mean, my mother had dementia, and her mother had dementia. So, you know, we were fortunate enough to have the ability to remove her from the decision making process fairly early on after we noticed her decline in cognitive capacity.
But I also unfortunately had some friends whose parents were lost millions of dollars through some combination of financial scams and poor financial decision making. Yeah. So this is about ten years ago. So around that time, I really started to wanna focus on this issue that I thought was was not getting paid enough attention to around decision making and how older adults tend to often lose their capacity to make sound decisions just at a time when they're needing to make somewhat complicated both health care and financial decisions.
Well, it's a really smart insight because as you point out, when you get to be around our age, you tend to know someone, whether it's a loved one or a friend of a friend that might be in that situation.
So, you know, I'm curious, as your research suggests that retirement gets much more complicated right when people may be less equipped to handle, really complicated decisions, feels a bit backwards. So what are your thoughts on how do we end up here?
Yeah. I think part of the reason we ended up here is, again, we're living longer. So many people living ten, twenty years or more beyond the traditional age of retirement. But most of us, unfortunately, start to experience some significant declines in our health, both our physical health and our cognitive health, during those periods.
And, medical research has done a great job of keeping us alive and helping us live longer, But, frequently, we live in this sort of more compromised state where our health is declining and especially our cognitive capacity is declining. There's there's plenty of studies that that suggest that virtually all of us are gonna lose some ability to make sound decisions as we get older. And that presents what I think is is kind of a new and and, again, not, well enough, studied effect and influence on our retirement because we now because we're living longer, we have to make more decisions. We have
to make decisions into our sixties and seventies and eighties that we didn't have to make previously. And these these decisions can be very, very consequential.
Yeah. That makes a lot of sense. And, you know, as you talk about those, age bands, right, I know that you've also explored how financial decision making and your ability to make those decisions may actually peak around the age of fifty three and decline afterwards. You know, I have to admit, for those of us who are looking at fifty three in the rearview mirror, it's a bit concerning. Yeah.
What are the implications of that finding for how advisors and institutions can engage with consumers approaching retirement?
Yeah. I I was a little surprised by by that research as well. You know, we all wanna think our capacity will, you know, peak at seventy three or maybe we'd settle for sixty three. But, there there is a major study that that suggested it was more closer to fifty three, and there's also been other research that implies that the this that the peak age of financial decision making for for most of us is sometime in our fifties. So that means, you know, our our our ability to make the best possible financial decisions is starts to decline well before we reach the typical age of retirement.
And that that that poses a whole bunch of issues, and it's something that I think financial professionals, you know, need to be made more aware of. Another finding from these studies about cognitive decline is financial decision making is actually one of the first skills to go for many of us. And so the implication of that is that financial professionals in many ways are on the front lines of monitoring for suboptimal financial decision making. They may see declines in cognitive capacity in their clients before their clients' doctors do.
So it really puts more onus on financial professionals to monitor these changes and to really be perhaps a little bit more open about discussing them with their clients than they have been in the past.
Yeah. And I can imagine, to your point, it's, not only financial professionals, but, you know, there can be subtle signs that family and loved ones can pick up on, like missed bills or credit deteriorating, that kind of disorganization around your finances. You know, what should families, advisors, and again, the financial institutions be watching for before there's even a formal diagnosis?
Yeah. I think that there's there are a lot of sort of telltale signs. Again, one one of one of the most important signs is financial mistakes.
Financially, I'm glad you mentioned organization because I think that's also an underappreciated side effect of of cognitive decline is people tend to get a little bit more disorganized. Part of what happens as we get older, what's called our executive function, that that part of our brain that helps us plan and organize, that starts to weaken. So once people start to get if you know somebody who's been really organized and really together, and it seems like they're forgetting things, so they're they're losing track of stuff, or they just seem a little bit, you know, disorganized. That that's a real sign.
I mean, there there are other signs to, you know, just how people talk, how people appear. I mean, if someone who previously has been very articulate is now, you know, struggling to find words or struggling to put coherent sense together. That that's that's a real sign. Or if they get, you know, lost driving to your office, that's a sign.
So there there there are these things that, advisers and family members can look out for.
And, again, a lot of them are, you know, kind of really basic stuff. I think I think one thing that it it this suggests is the importance of just kind of consistent monitoring, you know, both by family members and by financial professionals. Because another thing that that happens, and I saw this with my mother, is that sometimes these changes can occur really quickly.
Like, people can can have, you know, seen cognitively together and then kind of all of a sudden, they they just their their capacity drops.
So I think if you're you know, especially if you're a family member and if you're concerned about, you know, a parent or a sibling or a spouse even, you know, keep keep it try to keep an eye on them. Try to keep in communication. And and the same for financial professionals. I always say that, you know, one of the the best things to do is just stay in touch.
Yeah.
And, you know, if you're a financial professional, just stay in touch with those clients, check-in, how you're doing, have a conversation, and, you know, do that kind of ongoing monitoring.
Yeah. You know, I have an appreciation for the fact that you're describing probably a lot of what we would consider daily practices. I mean, I have a family member who recently had missed a few bills, and we became concerned. She's eighty one and, yeah, we thought those might be a sign. Turned out, it was literally, the post office that, misplaced her mail and she didn't receive the bill. So we were relieved, yet it was, I think, a really important checkpoint for us to sit down and have a conversation and just be honest about what was going on. Again, it turned out to be, all was fine, but those daily, interactions can be early warning signs.
Now, you've also talked about fraud and the targeting of older adults. It's really exploded over the last period of time, and older adults have lost billions annually to fraud and financial exploitation.
You know, why do you think retirees are such attractive targets, and what makes scams so difficult for them to spot them later in life?
Yeah. Unfortunately, the scammers are getting better and better, and AI is only gonna help them, especially with with some forms of voice recognition. So the scams are getting more sophisticated. So that's that's, something that's a really greater concern.
And and some of the reasons why older adults I wanna say this, not just older adults. Young younger folks and even middle aged adults can be targets of scans. But older adults, again, they they they they tend to lose a little bit of that capacity, those executive functions. There's some evidence that suggests that older adults might be a little bit more trusting, than younger adults. There's certainly, studies that suggest that they respond more sort of viscerally to sort of emotionally charged events.
And then, you know, finally, they just you know, they may have memory issues. They and and they many of them also have overconfidence issues.
So all these characteristics combined tend to make older adults more vulnerable to scams. And, again, it it it speaks to the importance of if you have an older family member you're concerned about is that consistent monitoring.
You know, ask them, you know, hey. Have you had any conversations recently with people that you don't you haven't known before? You know, are you responding to phone calls from people you don't know? Are you opening emails from people you don't know?
And then, you know, obviously, are you giving money?
Who are you giving money to, if anyone? Even if it's a family member, it's something that should be should be monitored really on a regular basis.
Yeah. Absolutely. And you're right. Unfortunately, it seems like some of those fraud and scams are becoming more frequent and certainly more sophisticated.
But now, in your paper, you've also described that protected income products like annuities, they're kind of like a cognitive insurance, and I found that to be a really interesting phrase.
Can you explain that concept and why you think it changes the conversation around protected income?
Yes. So as as we live longer, there's there's a lot of things going on. We're living longer, and then also the the sort of the landscape has changed. Most you know, unlike, you know, thirty, fifty years ago, most older adults don't have a pension.
They have Social Security. But, basically, they they need to make more decisions. They're gonna live longer, so the lifespan is longer. So they're gonna have to make more decisions just because their lifespan is longer.
But also planning planning for retirement and living in retirement is a lot more comp complicated than it used to be. Because, again, we all have Social Security, but most of us don't have pensions.
And now we've got, you know, these health care costs, which are much greater than they used to be. I mean, you know, fifty years ago, even if you had a lot of money, there just weren't a lot of medical treatments around to, to pay for them. Right. So even if we had the money, you could you couldn't pay for these expensive cancer treatments or, you know, you know, diabetes drugs. You they they just weren't available. So now you you do have these options, and so it means you have to make more decisions.
And part of the problem with with making all these decisions, especially you get older, is you might you can start making bad decisions again. You know, you can be defrauded. You can you can just make you're just more likely to make suboptimal financial decisions.
And so what what what could happen is for older adults in order to to finance their retirement, you know, they may have to frequently go into their bank account or go to the investment accounts, you know, log in, sell this, sell that, withdraw this.
And I I've unfortunately seen it. I I I I know people who who have made some really bad decisions.
Just just you know, they just opened up their bank account and then, you know, bad things happened after that.
So the nice thing about protected income is that it reduces the number of ongoing decisions you need to make. So if you if you if you if you have that, you know, monthly check coming in, you don't have to every month go in and figure out, you know, what what do I need to withdraw? What do I have to sell?
So it reduces that sort of cognitive burden on you. And so in that in that regard, I I think it it introduces this idea of sort of cognitive insurance where it reduces the number of ongoing decisions you have to make because for many older adults, unfortunately, almost any time they open up, you know, they log in to that bank account or log in to that Fidelity or Vanguard account, it opens the opportunity for something bad to happen.
Yeah. And I think I love the way you frame that in terms of security, peace of mind, and how that, protection can really provide much more security, and potentially financial freedom. Right? And sometimes financial freedom can really mean that folks are staying in full control of every single dollar and every single investment decision that they make.
But your paper almost suggests that there's value in putting finances on autopilot. Almost set it and forget it. Right? What does that look like Yeah. Practice for retirees and their families?
I like to I like to emphasize the the the word safe. So you wanna put on safe autopilot. But but especially with paying bills. I mean, we we we see this over over over in older adults.
You know, if you forget to pay bills, and that can, you know, have a lot of negative consequences. You know, accounts can be canceled. You know, your TV can all of a sudden go off. Your phone may not work anymore.
You know, your heat goes off in your house. You don't have air conditioning.
So if you can put especially, you know, these bills, these monthly, these ongoing bills, just put those on autopilot. You know? I think a lot of us do it like credit card or just, you know, auto you know, just pay it. Pay it. Pay it. Pay it. And, again, you wanna make sure that those those accounts are legit and, you know, maybe have some help setting those up.
But, put that on autopilot. You know, put as much as you can on safe autopilot because I think I think, again, retirement living and planning for retirement is is complicated. So to the extent that you can simplify your financial life, you simplify your decision making, that almost always is gonna provide some benefits because it's gonna on the one hand, it's gonna protect you, from potential, you know, errors. And then it's also just gonna it's gonna free up your time, and, hopefully, it's gonna, you know, lower your levels of anxiety a little bit just knowing that, you know, things are being taken care of. I don't have to make so many decisions. I can, you know, I can, go about my daily life without, you know, constantly worrying about I gotta do this or I gotta do that when it comes to my finances.
Yeah. I really like your emphasis on that notion of safety, because that's what a lot of folks are seeking, right? The safety, the security, the protection.
Now when you think about retirement success, today, and it's really about behaviors and emotions rather than just having enough money saved.
How do you strike that balance?
Yeah. I think I think that's another underappreciated element of of this. I think that and I think it's something that financial professionals you know, I'm sure many of them recognize this, but I think that, you know, financial professionals almost by design are good at managing complexity. That's kind of what they do. That's kind of the job description.
And they may take it for granted, but a lot of their clients aren't that good at that. They're not good at it, and even more so, it makes them anxious. It it you know, they they worry a lot about things that financial professionals, you know, may say, oh, you don't have to worry about that. It's under control, but the fact they really do. So I think that just this idea of ability to manage complexity and reduce complexity, again, reduce complex decisions, I think that that can have real kind of kind of psychic income and can and provide a real peace of mind. So, you know, for as a financial professional, if you do nothing else than just reduce that cognitive burden on your clients, that's gonna that's probably gonna mean as much as more to your clients than if, you know, you beat the S and P by three percent last year.
Yeah.
So I I think these I think these sort of emotional, consequences are really, you know, from a client perspective, as important as as the financial ones.
Yeah. Agreed. And, you know, so this has been really insightful, Chris. Yeah. I'm curious if you could give one piece of advice to someone planning for retirement today, not just financially, but mentally and emotionally, what would it be?
Yeah. Yeah. That's a good question. I think that, well, there there are a few things. One thing we haven't really talked about is, you know, there's there's also a lot of evidence that suggests it's really important to have purpose to really have meaning in retirement.
And so, you know, one thing I worry about with with with with my friends, is that or or where I've seen some people that if they that they kinda just feel like if they're bored or they're just, you know, just kinda sitting around. Unfortunately, I don't most of my friends are are not in that position, but I think it I think it's really important to have goals, and they and they they need to be, you know, well beyond financial goals. It's like, you know, what's what's gonna what's gonna bring you joy? What what's what's your purpose? What, you know, what are you what are you gonna be excited about when you get up in the morning? And so I think that that I think that you almost wanna start with those questions and those goals first and then work backwards a little bit to figure out what what if, you know, what are your financial what are the resources you're gonna need to be able to meet those broader, you know, more emotional and fulfilling goals?
And, you know, for some people, you know, if you wanna travel the world all the time, that's gonna mean you need more money. But if you just you know, if you really just want that, you know, cabin in the woods in Northern Maine and that's what you're gonna do, then then maybe you won't need as much. But, so I think that just having a sense for what's gonna make you happy, what's gonna make a fulfilling life for you in retirement is is is probably the best place to start.
Yeah. And that's such an excellent point because as folks think about their purpose and, in addition to funding the everyday needs that they have, there is such a strong connection between those ideas and dreams along with their, financial security. I don't know about you, but I do dream of retirement and being able to be up in the mountains every day. So it's you know, definitely everyone's got their own, dreams and where they wanna go. But Chris, this has been a really fascinating conversation because it challenges the way many of us think about retirement planning.
It is so much more than talking about the markets and returns and savings targets. You know, your research reminds us that retirement is also very deeply human and deeply personal.
And it's about how people make decisions over time, how aging can affect confidence and judgment, and how simplifying finances and decision making can, you know, along with protected income, provide not just financial security, but peace of mind as well.
And, you know, I think one of the biggest takeaways from today is that retirement planning isn't only about preparing your money for the future. It's about preparing yourself and your family for the realities that can come with living longer lives, changing health, and really a lot of increasingly complex financial decisions.
So Chris, thank you for joining us and for sharing these important insights. And thanks to everyone for listening. Be sure to subscribe for more conversations on the trends and ideas shaping the future of retirement and financial security.
