Baby boomers are intent on getting the most out of life and their money for many years to come. Whether they will or not, though, is far from guaranteed. What does this demographic really need and what does that mean for your practice?
What to Expect
Decades of spending
As the boomers start cashing in their retirement savings, the balance of your practice will likely shift from mostly managing the funds of “accumulators” to those of “distributors.” The demographic phenomenon of distributors is driven by the dramatic gains in longevity. Life expectancies have soared to where the average boomer male reaching age 65 will live to about 87, with a 25 percent chance of reaching 92. Females at age 65 have an average life expectancy of nearly 90, with a 25 percent chance of reaching 94. Couples reaching 65 have a 50 percent chance one of the pair will hit 92 and a 25 percent probability one of them will reach 97.
Credit Ken Dychtwald, a noted psychologist and author of books about aging, with identifying cyclic retirement as a new trend, which he describes as the growing preference of seniors to live a retirement that includes periods of education and work, as well as the leisure activities that took up most of the retirement years of previous generations.
Importance of health and health care in retirement planning
Three of the four biggest boomer retirement fears, according to Dychtwald's recent survey for Merrill Lynch, are health related: being unable to afford health insurance, contracting a major illness and going to a nursing home. For most retirees, health care will become their greatest concern and greatest expense. We have a special bias about the importance of this trend as the authors of “Retirement Doctor,” and we hope all advisors can more effectively incorporate health care issues into their practices.
Aging boomers may be helping out adult children and elderly parents. The life insurance industry calls boomers the “sandwich generation,” because they can be caught in between what may seem like competing needs.
Increased complexity of advice
Very few families will be able to meet their retirement funding needs through investments alone. Multiple liabilities and risks confront the boomer retiree, including disability and asset protection. Longer life spans will make retirement wealth management more of an active balance-sheet project, not just an account payout stream.
Lack of preparation
Over 60 percent of millionaires, according to the 2005 Phoenix Wealth Survey, say they lack the resources for a comfortable retirement. And that's just millionaires — what about everyone else? The retirement-funding crisis is primarily a function of too little savings at all levels.
What to Do Now
To profit from the retirement wave — and to keep you and your clients from getting swamped — consider these six steps:
Become the master liquidator
Until now, most boomers have been relatively low-maintenance clients, feeding you with regular deposits to a variety of retirement accounts that you invested on their behalf. As retirement approaches, they will now morph into a mass of accounts and benefits. You will need to become an expert on how to squeeze maximum value from government and private pensions, health care policies, life insurance, annuities and personal real estate (reverse mortgages were up 40 percent last year and are projected to rise another 40 percent in 2005 — see Registered Rep.'s December 2005 issue). How resourceful can you be?
Become a better “packager” of solutions
No matter how proficient you are as an investor and practice manager, you can benefit from packaged solutions. The right packages can leverage investment returns and save you valuable time. Consider two types of “packages”:
Protection packages — mitigate risks and liabilities. Fund estate tax burdens and fulfill legacy and charitable goals with life insurance, not cash, and save precious client assets for their retirement needs.
Investment packages — Get out of the daily investing and rebalancing grind with asset-allocation funds. They are ideal for managing the myriad accounts each client may have among IRAs, rollovers and individual accounts. Note: Asset-allocation funds attracted over $30 billion in net new assets in 2004 and remain a hot sector with self-directed investors.
Financial advisor to life advisor
Issues that have dotted your practice now take over, including senior housing options, disability and long-term care, reverse mortgages and annuities. You will have to decide how to provide advice in these areas, because they are critical components of a retiree's life. Query your clients — what areas are of greatest interest or concern? If you ignore these issues, you could lose valued clients.
Build a better client review
Greater longevity, health care issues and “cyclic” retirements are a confusing mix for any client relationship. Create clarity with a more comprehensive review — and a more structured format. We like Robert's Rules of Order as a model. Create a written agenda for each meeting and send it to the clients in advance. Include minutes from the last review, new business and a date for the next meeting.
Raise the bar
If you thought it was important to pick the correct “accumulator” clients, it is critical to limit your practice to the ideal “distributor” clients. Clients with insufficient retirement assets can be unprofitable. Remember, with nearly four million millionaire-boomer households already, there are no shortages of clients.
Become the retirement guru in your neighborhood
What do you really do? To a nation of aging boomers, you must stand out as a specialist in their needs. Make sure your marketing materials, seminars and client reviews all show a retirement focus. Best proof: Keep case studies of how you tackled thorny retirement challenges for other clients, and share these cases with prospective clients, accountants and local attorneys.
With preparation, you can stand out and ride the wave. Without preparation, prepare to be swamped by more ambitious competitors.
Writer's BIO: Stephen D. Gresham is executive vice president of Phoenix Investment Partners.
Glen E. Gresham, M.D., is professor emeritus of rehabilitation medicine at the University at Buffalo, The State University of New York.