The more things change, the less they will be the same. That's not a mistake. That's a fact. Over the next decade, new products, technology and adviser practices will make retirement look quite different than it does today.
Joseph Coughlin, Ph.D., the director of the Massachusetts Institute of Technology AgeLab, Rick Miller, Ph.D., CFP, and president and founder of Sensible Financial and Management, and Kathryn McCabe Votava, Ph.D., the president and founder of GOODCARE.com, all offered their views on the ways retirement will change, as part of MarketWatch's Retirement Adviser series.
Longer lives, ill health
According to the experts, Americans will likely live longer than their forbearers. That's the good news. The bad news is that they will likely live their lives with some sort of chronic illness, such as Type 2 diabetes or hypertension. "Here are some statistics to make you put down the chocolate croissants for a few minutes," said Coughlin. "110 million Americans have at least one chronic disease; 60 million of us have at least two; and 20 million of us won the lottery ticket of five chronic diseases. This is your future. You are going to be living longer. You will be ill, but you won't necessarily be sick."
Health-care will be more expensive than anticipated
And being ill will come with some health-care costs that you weren't anticipating or imagining. And all of those costs are unlikely to be covered by insurance, they'll be out-of-pocket. For instance, managing Type 2 diabetes might require the use of telehealth services, which will help you stay in the workforce or age in place, but that service won't be covered by traditional retiree health insurance plans. In the future, you might call your local telecommunications provider to check your glucose level every single day as well as talk to a coach who can help you manage your illness.
Coughlin noted, for instance, that major pharmacy chains are now providing visiting nurse services and equipment care to the home, and that grocery stores are now providing nutrition services geared specifically to your needs as you age with specific chronic disease categories.
"It's going to also be a matter of how much is it going to cost you to manage that illness so that you can stay in the game to either work, visit a grandchild, or whatever it may be," said Coughlin. "So the new cost of health care, we haven't even begun to imagine, but the new services that are coming out there, are going to be all out-of-pocket. They are not going to be covered right away by government, if at all."
Some health-care costs could decline
Votava agreed that that some health-care costs that aren't covered by Medicare today might be covered in the future if it costs the government less than the existing alternative.
"Telehealth and some of these other technologies have the potential to bring down health-care costs," said Votava. "We're really undercapitalized in health care overall using technologies. Every other industry has put more technology in and then gained more productivity out of it; but overall, yes, people are going to spend more of their pocket than they think that they will, but some of these things that aren't covered yet today will be covered in the future, because it's more economical to help a person stay at home and not be the rotating door in and out of the emergency room."
Novel services will emerge
To be sure telehealth has been around for years, but the experts also predicted new and different services will emerge as the baby boomer march toward and into retirement. "The people that want equality of life, the folks, frankly, the mass affluent and affluent market, especially who have been used to a high quality of life and expect to have that quality of life diminish a little bit over time because they're aging, because that's the nature of aging, are going to be looking for the novel services," said Coughlin.
For instance, Coughlin said, point-of-decision technology will play a big role in helping people decide whether to spend today or save for tomorrow. One such app that exists today shows the price of an item being considered for purchase and what that amount of money could translate into, in terms of monthly income in retirement, if it was saved to the participant's 401(k) plan.
Expectations will be high
As the experts mused about the future, they also suggested that a large gap will develop between expectations on the part of baby boomers and reality. Coughlin referred to the baby boomers as "Generation Expectation." Boomers believe they that they are going to live fundamentally better than their parents. "There will be a medicine," he said. "There will be a policy. There will be a service to help me live longer, better."
But the boomers haven't addressed how they're going to fund it. "They haven't addressed how they're going to be able to arrange their lives and their cars and their houses and the like to be able to pay for it, but that gap between expectations, as to what it's like for me to age vs. my parents and grandparents, is going to be a major tension point with financial analysts and planners and the product manufacturers out there, not to mention the politics of it in the background," said Coughlin.
Financial adviser as storyteller, psychologist and expert extraordinaire
The experts also said that financial advisers of the future will look nothing like financial advisers of today. The financial adviser of tomorrow will be an expert in Medicare, not just modern portfolio theory. They will storytellers and psychologists, not just people who rebalance a portfolio once per year.
For instance, Miller said, financial advisers in the future (though some do this today) will help clients sort through the retirement risks, rank the risks in terms of importance, because some of them are much more important than others, and some of them are much more insurable than others. What's more, they will "encourage people to think about things that are uncomfortable, to think about what they aren't going to think about on their own," said Miller.
Miller also said financial advisers of the future will help couples sort through and plan for the notion that one of them, usually the wife, will outlive the other 99% of the time. "One of them is going to end up living alone," said Miller. "You have to have a plan for that. You have to know, have some idea how that's going to work, whether there will be enough resources and the like. But I think it's unrealistic to expect individuals to do all of this detailed planning... on their own"
Coughlin, for his part, agreed that financial advisers will evolve into something other than what they are today. "The future of practice management is going to have to be being more of a storyteller and psychologist and not just being able to drive the models," he said. "That's going to be a major part of the job, but the other part of it is to make it simple."
As psychologist, financial advisers will need to have in-depth conversations with their clients. "They've always broken out in hives to talk," said Coughlin, who noted that financial planners can build plans to manage retirement risks, but are not well equipped to have a deeper discussion around health for instance. "I would suggest that in addition to the products that we need to think about, in addition to the amount of money that we need to plan how to keep the standard of living that we now enjoy or maybe a little less, we need to really get into the head of the client far more in terms of what's actually going on behind the scenes that are going to provide some sort of statistical assessment as to what that risk is," said Coughlin.
Coughlin also suggested that advisers who can tell stories that elicit emotion and inspire people to act will be more the norm than the exception. At the moment, financial advisers have a tough go of getting people to plan for something that might happen at age 85, and that's made all the more difficult given the velocity and the complexity of daily life today.
Said Coughlin: "So we've got to be good storytellers to get that emotion, to make us relevant, responsive and realistic for what the consumer needs today to plan for tomorrow."