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Financial Advisers Often Overlook Wives’ Needs

Old-school retirement planning doesn't always cut it for women


(This article appeared previously on MarketWatch.)

Dan McGrath believes that financial advisers are putting wives in harm's way.   

 
One of the authors of the new and revealing book, What You Don't Know about Retirement Will Hurt You!, McGrath believes the traditional approach to retirement planning hasn't kept pace with the changing rules of retirement.

He says the current realities of health care, taxes and the new reality of “means-tested” Medicare for retirees will significantly hurt the surviving spouse in the long run. And that is typically the wife.

(MORE: Widows Face Years of Undue Financial Hardship)

"The rules for retirement have changed and advisers have been slow to adapt to these new rules and thus we see many seniors, particularly women, get hurt financially as they need to adjust to the new costs that no one helped them to plan for,” McGrath says.

Widows Not Getting the Best Advice 

In a recent article I wrote about women and financial planning, McGrath painted a scenario that a widow may encounter after the loss of her husband. In that situation, the widow was now faced with lowered income and increased health care costs, due to her age and health and lack of long-term care coverage. But the adviser held to the age-old approach of spending cash and non-qualified assets [those that weren't in tax-deferred retirement plans] first.

He says this is a scenario that is occurring every day in this country. "The last part about having all of her non-qualified assets spent first, including her Roth IRA, is particularly troublesome given the means-tested nature of Medicare. It's very similar to what happened to my mom," he says.

(MORE: Women and Money Management: A Sad Story)

A Better Path to Financial Security 

In his book, McGrath discusses a conversation he had with his mother, who felt that her son was able to address her financial planning needs and that she would be in good hands. What McGrath discovered is that the new rules of retirement require an approach that many advisers have avoided and one that he feels they need to utilize to help investors going forward.

This new approach would have addressed McGrath's scenario with a different strategy.

"While the couple was alive and implementing a retirement financial plan, I'd include products such as life insurance with long-term care (LTC) riders for each of them along with a LTC product such as Lincoln's MoneyGuard or Pacific Life's PremierCare. I'd also start using those precious tax-deferred assets once they reach the qualifying age, while allowing the cash, the non-qualified assets and the Roth accounts to grow, ” McGrath says.

He goes on to recommend what he feels are two things that most advisers avoid for clients butyshould be considered given the new rules of retirement: opening a home equity line or reverse mortgage to allow access to potential income, and use some of their non-qualified assets to purchase a Single Premium Immediate Annuity (SPIA) the year they retire.

(MORE: Hedging Your Bets on Long-Term Care)

Making the Money Last Longer
 
How would this have changed the scenario?
 
McGrath says: “When the husband gets sick, the LTC is triggered, allowing her to hire someone to tend to him and helping her maintain her health. The life insurance kicks in to supplement the lost Social Security income when he passes away. Along with paying her bills with her cash, non-qualified assets and Roth assets, she can tap her home equity or reverse mortgage to help as well.”
 
In the first scenario, McGrath points out that the woman in declining health could find herself in a Medicaid situation which may lead her to a facility far from home and family. When McGrath's strategy is used, the widow doesn't lose her home and uses her LTC coverage to hire someone to help her and stay in her own home.
 
“Along with the fact that her income from the SPIA, her home, cash and the Roth are either not taxed or taxed at a lower amount,” McGrath says, “the best part is that they are not recognized by Medicare so her health costs remain low and her Social Security benefits remain constant.”
Jack Tatar is a former financial advisor and current CEO of GEM Research Solutions, a leading market-research firm focused on the financial services industry. He is a frequent speaker on the topic of retirement and recently published Having 'The Talk' with Your Parents About Retirement. He also wrote Safe 4 Retirement: The Four Keys to a Safe Retirement and runs the related website which takes a holistic approach to retirement. Reach him by email at [email protected] or on Twitter @Safe4Retirement.

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