10 ways financial advisors can attract baby boomers in 2010
By Jason Lampa MBA
College Savings Bank
Between the years 1946 and 1964, it is estimated that 76 million babies were born in America. Known as the baby boomers, they are now reaching their retirement years in a drastically changing economy.
Baby boomers are in a transition phase, where their focus is shifting from asset accumulation during their "earning" years to income generation for their upcoming retirement phase. Studies reveal that previously, many investors were overly optimistic about their retirement visions. Where once boomers thought that their pension plans would suffice to get them through their retirement years, this is now becoming an issue, especially with the changing economy. Assets invested in defined contribution plans, individual retirement accounts (IRAs) and non-qualified accounts will develop into the major source of income for these future retirees. Nevertheless, boomers now have to contend with the fact that the pensions they were relying on may not exist for them in the future.
The inherent challenges they now must face include:
- Decreasing Social Security benefits
- Growing need for account-type pension plans
- Reduced pension plans in the face of the current global economy
- Rising health care costs, made even more of an issue due to the aging population
- Increased life expectancies due to better diet, health care and medical advancements
Of course, the chief responsibility of financial advisors will be to educate boomers in a new way of thinking about their finances. Financial advisors need to shift the focus of upcoming retirees into thinking more about retirement planning strategies and restructuring their portfolios to better suit their retirement needs. They will need to honestly assess the clients' vision of retirement and develop realistic and sustainable retirement savings models. They need to be prepared to come up with ways that provide a reliable income source once an individual stops working.
Past retirement savings included 401(k)s and IRAs, which have suffered the worst consequences of unfavorable market changes. Financial advisors need to shift to investment strategies where boomers take greater individual responsibility for their retirement plans, rather than relying on government funding. They need to focus on generating a sustainable retirement income stream from accumulated pension assets.
Here are 10 ideas for financial advisors to attract baby boomer business in 2010:
1. Investment products that address the decrease in accumulation of funds and focus more on retirement-specific needs such as rising health care costs and inflation should be presented. Offering products that provide protection against inflation is a sensible way to attract boomer business.
2. More emphasis should be placed on product choice and financial advice in the future. In the changing economic climate, the general product range should take into consideration the increased volatility, instability and uncertainty of capital markets.
3. Financial advisors should have a plan to put a fund-withdrawal system in place consistent with retirement spending. Life expectancy should be taken into account so that the money does not run out and the plan is not outlived.
4. Financial advisors should offer products that have the flexibility to cover unanticipated expenses. Unexpected expenses could include a new roof for the house, a car repair or even unexpected medical bills, all which may require funding not supplied within the regular fund-withdrawal system.
5. Another idea is to offer a product that has the option to leave an inheritance. People are always interested in what they can leave behind for the betterment of their children or grandchildren.
6. Financial advisors should advise greater diversification in the products they offer to spread the risk of investment. Boomers have less time to recover from any losses suffered, so diversification helps to cover longevity risks in a variable market.
7. Within the baby boomer community, two housing trends are emerging. The first is with respect to downsizing. Discussing downsizing is another business strategy idea. Within this area of boomer households, children have grown and moved on to their own pursuits, leaving the parents alone in a house that may be too big for them. Even with the current decline in housing price trends, downsizing to a smaller more manageable house would not only reduce monthly housing expenses, but could also lead to acquired home equity that could potentially be invested for retirement purposes.
8. Although many boomers are downsizing their living arrangements, the second trend reveals some are actually upgrading to bigger, more expensive houses. The more financially secure are finding homes situated along waterfronts, ski resorts and in more desirable areas. This leads to a different investment strategy that financial advisors can take advantage of. The wealth of these retirees needs to be readjusted to accommodate their new living arrangements.
9. Many boomers are leaning towards a continuing work platform in their later years. In fact, it is estimated that 75 percent of all boomers intend to keep working throughout their retirement. Although they may be retiring from current jobs, many are considering new careers or businesses geared towards their present interests to keep them occupied in their retirement years. Taking into account this new source of income, along with their retirement savings plan, creates another source of discussion and possible investment business.
10. In recent studies, it was found that an astonishing 50 percent of all baby boomers were still raising one or more young children and/or providing support to their elderly parents. With this in mind, financial advisors should amend retirement investment plans to include support for these other family members.
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