One effect of the lingering tough economy is the threat it poses to many people’s financial and retirement plans. For people 65 and older, this threat is further complicated by the longevity effect, which indicates that people today are expected to live longer lives as compared to prior generations.

As a result, many advisors who work with older clients are recommending a frequent review of a client’s financial situation. Increasingly, these advisors discover a need to help find creative opportunities, such as life settlements for senior clients who find themselves with less certain financial stability than they had planned.

A growing number of older people with troubled financial portfolios are considering different options to cut back on their expenses. Many are also looking for new sources of income. AARP recently did a study on the effects of the stock-market decline over the past two years. AARP found that many people 50 to 70 who had lost money are making significant adjustments to their lifestyles as a result. Among the 1,013 Americans surveyed:

• 60% percent who lost money expect their losses to affect their retirement lifestyles.
• Two-thirds of those who reported losing money in the stock market said they are budgeting their money more carefully, taking fewer vacations than they used to, or adjusting their lifestyles in other ways.
• About 25% have postponed retirement, returned to work in retirement, started to look for work, or are considering taking one of these steps as a result of their losses.

Without question, a stock-market decline can have a serious effect on a senior’s financial plan. But there are other potential dangers to retirement savings, including increasing healthcare costs associated with living longer.

Consider the financial consequences on even the most sound and well-funded financial plan when an illness, such as Alzheimer’s disease strikes. The average estimated lifetime cost of the disease per person is $174,000, according to the Alzheimer’s Association.

While some healthcare contingencies can be covered through long-term care insurance (purchased years before the need arose, when most adults would qualify for such coverage), the reality is that many people in their 70’s and 80’s who need long-term care have no access to this type of insurance and, if they do, it’s certainly not at an attractive price.

Advisors looking to identify new income sources are increasingly interested in the opportunities afforded through life settlements.

Life settlements are an emerging financial planning product that can provide substantial consumer benefits based on these new realities of the aging marketplace.

Through a life settlement transaction, people 65 or older can turn an unwanted or unneeded life insurance policy into a source of cash and always receive more than the cash surrender value (CSV) of the policy. This is an appealing option for those who have outlived the original purpose of the life insurance policy and no longer want or need the policy.

Life settlements are a part of a new financial planning reality when it is hard to know how much savings and income will be enough. It can be daunting for a person in his or her 60s today to think of how many times the stock market can slide over a 25-year period. Even more upsetting is the thought that a dramatic increase in expenditures (due to declining health, for example) can provoke an even greater financial shock than a decline in the stock market.

As the number of senior citizens in this country is continuing its rapid growth, so is the number of life-settlement transactions. Many life-settlement providers are experiencing an impressive increase in the number of transactions completed this year as compared to previous years.

As the number of life-settlement transactions in this country expands and there is an increasing amount of positive press coverage about life settlements in major business publications such as USA Today and The Economist, there is increased awareness and understanding in the consumer marketplace about life settlements. We have seen firsthand a continuous increase in the number of people pursuing a life settlement.

Still not certain how many senior clients will be interested in life settlements in the coming years? Consider this statistic — according to North Castle Partners, an investment banking firm specializing in the senior marketplace, between 2000 and 2010, the number of people age 80 and over is expected to grow about three times faster than the overall population.