While at Merrill Lynch, Sally Krawchuk, pointed out to financial advisers at the firm that they needed to ensure that discussions with clients meant not just ones with the husbands, but the wives as well.
After all, she pointed that when male clients died, the firm loses about 50% of those assets when the wife decides that the adviser was only talking to her husband and not with her and she decides to find someone who will finally, work with her.
Dan McGrath, one of the authors of the new and revealing book, “What You Don’t Know about Retirement Will Hurt You!,” thinks that the approach that many advisers take toward the husband/wife relationship is even more destructive than just not involving the wife in investing or account discussions. He believes that advisers are putting wives in harm’s way, and many don’t even know it.
Dan believes that this occurs because the traditional approach to retirement planning hasn’t kept pace with the changing rules of retirement. He believes that the current realities of health care, tax treatments and the new reality of “means tested” Medicare for retirees in today’s world will significantly hurt the surviving spouse in the long run. And that is typically the wife.
Dan sees traditional retirement financial planning being conducted by advisers today as consisting of accumulating wealth through tax deferred investments, buying term insurance and investing the difference, self funding long-term care, paying down a mortgage, using non-qualified assets first in retirement distributions, avoid annuities and using qualified tax deferred assets last to keep the tax bill as low as possible.
Dan feels that using this age-old approach to financial planning by advisers can cause problems in the new world of retirement when a spouse dies or gets ill.
“Statistically, it’s the husband who gets sick and the wife must take care of him. An adviser believes that the prudent advice is to distribute assets by using cash first, then non-qualified assets like stocks, bonds or mutual funds. Roths are also considered next and lastly, advisers save those precious traditional IRA or rollover assets. But in the new world of retirement and health care, these aren’t the right things to do,” Dan says.
Dan goes on to point out that if the adviser didn’t discuss certain products such as LTC, insurance and even annuities, and just followed the traditional approach to financial planning, the reality is that the wife who takes care of her aging husband (and who is now in perhaps worse health than when she started) will encounter the following when the husband passes away:
- She will receive a third less Social Security as she loses the lowest of the two benefits.
- Less income than ever before with no way to supplement it.
- Higher medical bills due to her health and no LTC coverage to help offset the costs to get better care.
- No cash, no non-qualified assets, no insurance proceeds and even her Roth assets are spent.
“The story continues to spiral downhill,” Dan further points out, “as the wife must now encounter the new world of means tested Medicare, where her remaining assets, now in what were once a tax-qualified account and are now taxable, will actually increase her Medicare premiums. And these premiums will be paid as they can be automatically deducted from any Social Security she receives.”
The story becomes most tragic when the last remaining asset that she owns, her house, has to be given away as she is forced to then go onto Medicaid to receive the care she needs.
The reality is that when you speak with Dan, you don’t actually encounter a man who looks or sounds like the grim reaper, although his scenarios and fear filled tales might lead you to view him as such. He actually is a very optimistic and driven professional who believes that although this story happens every day, it doesn’t have to, and he has faith that the adviser community will readjust their thinking to approach this problem.
In the next article on Dan and his book, I’ll discuss the approach that he feels advisers should take to help their clients navigate the changing rules of retirement.