Most wealth advisors are familiar with the financial risks in retirement, such as inflation, investments and interest rates. What is not as well known is that non-financial events pose as much, if not more, risk to the retirement security of their clients. These hard-to-predict events include pre-retirement shocks, health care, chronic care, longevity, and widowhood, any one of which can cause a serious blow to an otherwise solid plan.

Pre-Retirement Shocks
Pre-retirement refers to the 10-year period before retirement. This is a busy time of life from a financial perspective. College expenses and home mortgages are being paid, income is peaking, and consumers are beginning to focus on saving for retirement.

But things often go wrong during late middle age. During the decade leading up to retirement, three of four married couples who are college graduates experience an event that could derail their retirement plans. The most common event (35% of couples) is onset of a major medical condition in the husband or wife, such as cancer, heart problems, a stroke or diabetes. Other shocks include a frail parent or in-law who requires physical and/or financial support (34%), health-related work limitation (24%), job loss (19%) and widowhood (5%).¹

Job loss is especially noteworthy given today's difficult economic climate. A 2011 study by the Urban Institute reported that of workers aged 50-61 who lost their job in 2009, only one in four found a new job within a year. When they did, they often had to accept deep pay cuts that averaged 20 percent less than their prior salary.²

Further evidence of the frequency of these shocks was provided by a report from the Society of Actuaries. Four of ten people retire before they expected to, often because of poor health, job loss or to care for a spouse or other family members.³

Health Care Costs
Most people are surprised to learn that many healthy couples spend more money on medical care during their retirement than unhealthy couples. The reason is because healthy people live longer, eventually develop health problems, survive longer after an illness develops, and are more likely to need chronic care.⁴

These costs can be very high. Fidelity Investments estimates that an average 65-year-old couple retiring in 2011 will need $230,000 to pay for out-of-pocket medical expenses throughout retirement, not including nursing home care. And since medical costs are increasing faster than the rate of inflation, they will consume a larger percentage of retirement income in the future.⁵

One other uncertainty is Medicare. If policy decisions are made that decrease reimbursement for medical care during retirement, out-of-pocket medical expenses might be considerably higher than today.

Chronic Care Costs
Chronic care is care provided for those who cannot perform some or all activities of daily living, such as bathing, continence, dressing, eating, toileting and transferring. For people age 65 and older, 6 in 10 men and 8 in 10 women will need chronic care during their lifetime,⁶ mainly for Alzheimer's disease, stroke, crippling arthritis, Parkinson's disease, serious accidents and degenerative neurologic diseases.

A March 2011 report from the Alzheimer's Association highlighted the impact of Alzheimer's in our lives.⁷ There are 5.4 million Americans with Alzheimer's disease, and 15 million unpaid caregivers providing 17 billion hours of unpaid care to them. Over half (55 percent) of unpaid caregivers are the primary breadwinners of the household, 60 percent are women, and one in four family caregivers have children under 18 years old living with them.

Most people (73%) who need chronic care are cared for at home by a family member, not in an assisted living faculty or a nursing home.⁸ And this percentage might be even higher if people could stay at home. Sadly, many people enter a nursing home not because they are severely disabled, but because they no longer have a caregiver at home.

Longevity
Most people are more worried about outliving their money than dying,⁹ and for good reason. The number of Americans age 65 and older in 2030 is projected to be twice as large as in 2000, growing from 35 million to 72 million,¹⁰ and representing nearly 20 percent of the population.¹¹ America's population of centenarians--already the largest in the world--has roughly doubled in the past 20 years, to around 72,000, and is projected to at least double again by 2020.¹² Some demographers predict that if the pace of increase in life expectancy continues through the 21st century, most babies born since 2000 will live to the age of 100.¹³

Here's a real world example of the need to address longevity risk. Suppose a financial advisor has a client couple age 65, both of whom were approved for life insurance at standard rates. Insurers project a life expectancy for the husband and wife, respectively, of 87 and 89 years. This means that approximately 38 of 100 men (almost 4 in 10) and 50 of 100 women (half) will reach age 90.¹⁴ More amazing still is that 14 of the 100 men (one in seven) and 25 of the 100 women (one in four) will live to at least age 95.

Widowhood
In the example above, there is a two-year difference in the life expectancy of a 65-year-old man and woman (87 versus 89). This would lead most people to conclude that widowhood is usually relatively short. But this is not true. Widowhood often lasts for many years or even decades.

First, the good news: People are living longer and living longer together. According to the 2000 Individual Annuity Mortality Basic Table, half of 65-year-old couples will reach age 80 together.

The bad news is that after one spouse dies, the survivor is often left alone for a long time. For 65-year-old couples, almost three in four (71%) will be widowed for five years or more, and nearly half (46%) will be widowed for ten years or more. If the surviving spouse is the wife, as is often the case, she may have less savings (especially if the couple's retirement nest egg was depleted by the illness of the partner who died), lower Social Security benefits and smaller pensions. To make matters worse, she no longer has a spouse to care for her when she becomes ill at a later age.

While we may not be able to prevent these non-financial events, there are financial options that can change how these events affect clients and their families. So, while clients may not be able to save enough money to cover the cost of all of life's unforeseen events, there are new insurance products that provide extra income from a policy's death benefit when it is needed most.

Dr. Robert Pokorski is chief medical strategist in The Hartford's Individual Life Insurance business. The Hartford offers life insurance policies, as well as its LifeAccess Accelerated Benefit Rider that can provide income to someone who becomes chronically ill and its LongevityAccess Rider that can provide income to someone who lives to the age of 90 and beyond. Insureds must meet all rider requirements to receive benefits. Benefits from more than one rider cannot be received at the same time and receiving benefits under either rider will reduce, or may eliminate, the death benefit to beneficiaries or available under the other rider.

1    Richard W. Johnson. When the nest egg cracks. Urban Institute, 2006.
2    Richard W. Johnson, Janice S. Park. Can unemployed older workers find work? Urban Institute, 2006.
3    Billings MB, Rappaport AM. Living to 100 - Challenges and opportunities for employers. October 25, 2010.
4    Sun W, et al. Does staying healthy reduce your lifetime health care costs? Center for Retirement Research. May 2010, Number 10-8.
5      Johnson RW, Mommaerts C. Will health care costs bankrupt aging boomers? The Urban Institute. February 2010.
6    Kemper P, et al. Inquiry. Winter 2005/2006;42:335-50
7    2011 Alzheimer's Disease Facts and Figures. Alzheimer's Association.
8    National Care Planning Council, 2011.
9    Anne R. Carey and Sam Ward, USA Today, February 16, 2011. Source: Allianz survey of adults ages 44-75.
10    Federal Interagency Forum on Aging-Related Statistics. Older Americans 2010: Key Indicators of Well-Being. Washington, DC: U.S. Government Printing Office. July 2010.
11    U.S. Department of Health and Human Services: National Clearinghouse for Long-Term Care Information, 2010.
12    Number of 100-year-olds is booming in US. Associated Press (AP), April 27, 2011.
13    Christensen K, Doblhammer G, Rau R, et al. Ageing populations: The challenges ahead. Lancet 2009;374:1196-208/
14    The 2008 Valuation Basic Table, Select and Ultimate Nonsmoker, which is based on U.S. insurance com-pany individually underwritten mortality experience.