Q. In your opinion, how should a planner approach the issue of longevity of life and outliving the planned financial life?
A. If we are to fulfill our desired role as our clients' primary advisors, it is our duty to bring up any area that could significantly impact their well-being. In looking at the issues that could affect the last years of a client's life, there are many factors to address. The first question is which factors can the client control or at least influence? Another key question is which factors would have the greatest influence on the outcome? If the client engages in behaviors that are detrimental to health, at the very least the advisor should name them and put them into context ("When looking at the end game, we need to take into account that people who are not taking care of their physical health are far more likely to have several years of frailty and high medical expenses in their last years. Do you prefer to take that chance, or would you like to take steps now to reduce that possibility?"). Resources are currently available for the advisor to use in helping clients assess their health risks, and more tools are being developed all the time. Advisors who want to do their utmost to help their clients have successful outcomes would do well to learn about these resources and use them.
Q. If you were to prioritize one issue in financial planning as the most problematic for us, as a nation, what would it be, and why?
People aren't innately skilled in making complex decisions, and when they are required to make choices when they aren't confident that their choice will be right, they tend to do nothing, even if nothing is obviously detrimental. This is a major reason why so few people sign up for participation in 401k plans, and why when they do, they tend to leave their money in the money market fund. In the past governmental policy acknowledged this tendency to avoid hard decisions by creating or supporting conditions to encourage private creation of programs that made the decisions on behalf of participants (such as defined benefit plans and social security).
With the sea change in government's perception of its role vis a vis its citizens, people have been forced into participation in programs for which they don't have sufficient information to make judgments that they can be confident of (the prescription drug plan is an obvious example). How will this fundamental and critical gap between the significance of the decisions to be made and the ability to make those decisions be addressed? Financial advisors fancy themselves as the ones best positioned to provide the necessary education, but the masses can't afford to buy access to advisors. In addition, most advisors don't focus on helping people explore the hidden factors (emotions, biases, beliefs) that so often short-circuit good decision-making. The media try to fill in the gap with articles, books, and shows on financial principles, but they can't teach people how to interpret and apply these principles to the specifics of their own lives.
There are many major issues that the people of this nation are being called on to face, but if our society isn't realistic about what people are practically (not theoretically) capable of, we'll continue to lurch from one unintended consequence to the next.