Are baby boomers getting more attention than they deserve?
By Don Wilkinson
DFW & Associates
Are baby boomers getting more attention than they deserve? Before I answer the question, here are some facts on the biggest population bubble in our nation's history:
1. An estimated 78.2 million baby boomers were born between 1946 and 1964
2. Almost 8,000 people turn 60 each day
3. Fifty-nine million boomers will be living in 2030. During that decade year, boomers will be between ages 66 and 84 -- 54.9 percent will be female.
The long awaited milestone of this important demographic group is now upon us, is not going away, and, in spite of all the hype surrounding the boomers, they will have significant implications on our economy and investment markets for the next 20 years -- and beyond.
So the answer to the question, in my opinion, is: The more boomer attention received the better. Bring on the hype if it helps rivet the attention of the investment community, especially the independent financial advisor. This baby boomer phenomenon is going to have important consequences for your asset management business. In case you need a kick in the pants, remember this fact: 43 million of American's 100 million households will enter retirement within the next 20 years.
As you know, clients who are retired with portfolios supporting them have different financial advice needs than younger clients who are working and saving for their future.
Your management of portfolios after cash withdrawals begin makes these portfolios far more vulnerable to short-term economic and market swings than a client whose portfolio has 20 years to build assets. This is exactly the situation we are going through now.
Let's face it: Our industry has been overly focused on asset accumulation and portfolio performance. It's unprepared to handle the huge distribution of assets coming sooner than realized.
This new trend of switching from accumulating assets to helping clients stabilize those assets into income to last the rest of their lives will be catching some advisors flat- footed unless they prepare now.
There's a whole group of issues on the stage: longevity, inflation, taxes, monthly income plans, philanthropic efforts and second job entry, health care and long term care costs, estate planning, inheritance, life long learning, Social Security benefits, care giving for parents and children, liquidity, investment guarantees, retirement security and the seesaw of market performance.
Let's just take just one issue, "retirement security." Compared to 2007, baby boomers confidence in their long-term retirement resources has fallen in the dunk tank. In 2007, Watson Wyatt Worldwide, a global consulting firm focused on human capital and financial management, surveyed boomers about their retirement plans, and found that 63 percent felt very confident about having enough resources to live comfortably five years into retirement.
The latest survey by the consulting company shows that confidence has dropped to 44 percent. Further, the survey shows that, throughout a 25 year period, 32 percent of boomers have no confidence at all about their retirement security -- most of whom will live that long, according to life expectancy tables.
A more recent survey conducted by the Employee Benefit Research Institute (EBRI) has posted a new low in confidence about having a financially secure retirement. Only 20 percent now say they are very confident about having enough to live on comfortably in their retirement years, down from 41 percent in 2007 (the lowest since the survey began in l993).
I need not mention the lost confidence, market instability and Wall Street scandals (i.e., Madoff) that have influenced the role of the affluent clients' primary financial advisor and how recent events have affected the confidence, trust, and reliability of his or her advice. Due to these recent events, investors are disenchanted with advisors because, I suspect, many advisors have been more interested in gathering assets than managing them.
As we are talking about the baby boomer generation here, the challenge for wealth advisors is simply this: You will have to work with your boomer clients to have an asset allocation strategy that fine tunes withdrawals in order to maintain sufficient income throughout their lives.
This calls for Human Relations 101. More than ever, you have to reassure your boomer clients who still are working and have a longer investment horizon. To be specific: Why not offer a complimentary service to clients/prospects entitled, "Are you making enough for life?" As a result of the drop of 2008 -- and the mini recovery of 2009 -- will your client/prospect run out of money based on pre-2008 withdrawals done by you or another advisor?
Since there's a good chance your boomer clients will make it to the IRS life expectancy tables, withdrawals may be too high compared to post-2008 retirement balances. You can be a hero if you catch this now -- before it's too late to reassess your clients and prospects. Extend this service to your newsletter and seminars.
Focus on income solutions for your boomer clients rather than specific investment products. With this approach, you as an independent advisor, can develop realistic income strategies that can move boomer clients successfully through their retirement years. This approach will attract more rollover boomers to your practice.
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