78 million new Americans were born between 1946 and 1964. Known as the baby boomers, this generation fueled the rapid expansion of the U.S. economy over the past 40 years. In 2006, the first set of baby boomers reached age 60, with more than 3.6 million boomers set to turn 60 each year after that for the next 18 years (through 2024).
Compared to how their parents and grandparents defined retirement, today’s boomers are not “settlers”. For many of this generation, they plan to be more active than any previous retirement generation. Many are opting to live in their own homes with the help of West PACE. They are living longer, adopting healthier lifestyles. Study after study cites boomers’ desires to pursue hobbies, travel and volunteering opportunities delayed during their working years. While our product marketing materials show the happy boomer couple walking the beach or boarding the cruise ship, I fear many boomers are uneasy with the knowledge they are not financially prepared to enter the retirement phase of their lives. Having big goals and aims for retirement also comes at a price of needing to save more and being financially prepared for what life throws at you. Many retired people hope to live life to the full, such as being a part of an active adult community in Utah (or wherever they might be based) – which ultimately comes at a price! Although the thought of it is very exciting, it’s important for those about to retire to keep on top of their financial information.
Chart 1 from the LIMRA Secure Retirement Institute1 depicts only 50 percent of older boomers (born 1946-1955) have amassed $100,000 or more in retirement savings. For trailing edge boomers (born 1956-1964) only 43 percent have $100,000 or more in retirement savings. Those of you active in the senior market know that clients with a $100,000 nest egg, combined with a moderate social security benefit, are facing a bleak retirement future. While we can present them with insurance products that offer some amazing benefits, these clients are faced with the prospect of continuing to work past retirement age, lowering their expected standard of living, or dying early to avoid outliving their assets.
Based on these numbers, a recently introduced insurance company commercial depicting a couple avoiding Retirement planning is spot on! The humorous couple outdo each other with ridiculous reasons why they are too busy to discuss their retirement future. For those of us in the business of helping our clients reach their retirement goals, the humor fades quickly.
Chart 1 points to the immense educational effort that our industry should be undertaking and the opportunity for our carriers and producers to help consumers make informed choices and take responsibility for their retirement future. Those with less than $100,000 saved for retirement had better hope they can continue employment if they have any desire to maintain their lifestyle, and that may be a problem for Gen Xers and Millennials standing in line for those positions. Millennials are also going to need our help based on an article posted March 29 by USA TODAY with the headline: “Millennials’ New Retirement Number? $1.8 million (or more!)” The article stated that the youngest boomers, born in 1964, would need $1.3 million in retirement assets. The amount for Gen Xers was $1.6 million and $1.8 million for Millennials. The article also assumed a seven percent growth rate on investments…anyone want to take that bet based on a consistent seven percent return based on recent history?
Having established the need and immense opportunity to serve this market (DOL rules notwithstanding), how do we get their attention to focus on making a viable retirement plan?
Education-A Critical Disconnect:
Are boomers disconnected from present financial realities and the security of their nest eggs? Google “boomer retirement” on the internet and over 500,000 results will be generated. Within this sea of information are studies citing more than a third of boomers believe that Social Security will be their primary source of retirement income. The Social Security Administration notes that old age benefits are designed to cover approximately 40 percent of salary and not be a primary source of income. In addition, unless Social Security funding issues are addressed, there is a very real possibility that future benefits will be reduced. Here are some common sense issues every boomer should be considering:
I’m responsible for my own retirement.
I may well spend 25-30+ years in retirement.
What if I lose my job before I want to retire?
How will I pay future health care costs?
Social Security solvency concerns me.
Would a 30+ percent loss in my 401(k) change my plans?
A U.S. News article this past February cited recent Urban Institute studies noting how boomers are changing the traditional retirement model. The article stated that traditional pension plans covered 30-40 percent of adults born in the 1940s and 1950s, but are expected to cover only 11 percent of those born in the 1980s. To overcome their lack of retirement savings many boomers plan to work past retirement age. This will allow for higher Social Security income benefits when they do retire, and reduce the assets needed to cover the income gap between retirement expenses and their Social Security payout. Delaying retirement will also help finance the cost of increased life expectancy and attendant health care costs.
Because boomers are such a diverse demographic, you might want to consider employment status in addition to age range. Many boomer prospects intending to work past normal retirement age, for health insurance benefits and to bolster their retirement nest eggs, may find great appeal in opportunities to safely grow and protect savings generated in their later years.
Retirement 101
Once your prospects have shared their goals and dreams for their retirement, you can help them create their personal retirement text book with the completion of a thorough financial fact-finder. Caution: If you launch into the features and benefits found in most product sales literature prior to completing this step, your sale is probably dead (or should be). How can you possibly recommend a product solution without understanding the overall financial situation? The more detailed your fact-finding process, the more likely you will succeed in offering viable solutions your clients can utilize and appreciate. You need a tool that captures a focused snapshot of the prospect’s current financial situation to expose potential retirement risks and how those risks might be mitigated.
The results of this process also helps your case development partner at your annuity marketing organization (AMO) to find the best product solutions to present and can be an immense assist in suitability review once your case arrives at the insurance carrier’s new business department. Ask your AMO for help in finding a quality fact-finder that addresses risk tolerance, potential health issues and income generation in addition to the obvious information needed.
Our value proposition is a simple one. We market insurance products. We show clients how they can transfer some of their risk of outliving their savings and protect loved ones if they die prematurely. Our prudent clients insure their homes and automobiles, so the concept of protecting their retirement future should not be difficult to embrace. After years of helping my own clients, I believe the issues (and your presentation) simply boil down to the following:
Risk tolerance
Income generation
Health concerns
They may not pin-point these concerns as clearly as the bullet points above, but these are the three biggest fears I have consistently addressed over the years.
Risk Tolerance:
Remember the recessions of 2001 and 2008-2009? Nearly $7 trillion in shareholder wealth was wiped out, and resulted in financial catastrophe for many of those nearing retirement. While waiting for a market recovery may be acceptable if you are in your 30s or 40s, it is quite another issue of you are within a few years of leaving the workforce. This recession also witnessed many older workers faced with unemployment. Illuminating the concept of risk tolerance to help your prospect determine his personal comfort level is one of the most important conversations you can have during your fact-finding session. Your fact-finder should effectively present the concept of risk tolerance and help your prospect determine his risk comfort level…think Rule of 100 with a conservative, moderate and aggressive mindset.
Boomer Health Issues:
One of the most important issues to address is potential chronic care issues that could derail what appears to be a sound retirement plan. If your prospect has dealt with a parent, family member or acquaintance that has faced chronic care expenses in retirement, he will be appreciative of planning for this “what if” scenario for himself and his spouse. The combination of boomers living longer and soaring health care costs point to demand for care facilities and professions that may well outstrip supply. Brokers need to have a frank discussion of how prospects intend to deal with this risk. Fortunately, the recently introduced chronic care riders and living benefits features found in many fixed indexed annuities may be a valuable asset worthy of your client’s consideration.
Income Generation:
We need to understand and appreciate that most our clients who have done a great job of accumulating retirement assets have not really thought out how to convert those assets to a lifetime income stream. Your fact-finder should inventory all available income assets. Common sense says we start with a review of the prospect’s Social Security earnings, coordinated with their spouse, to maximize those benefits. There are many great software solutions available to agents today that can assist in this effort. I also suggest that you consider additional education regarding Social Security benefits to better serve your clients. The training firm we work with has educated hundreds of agents to better assist clients trying to navigate the SSA to enjoy the optimum Social Security benefits they have earned.
This leads you to a discussion of how to span the income gap between Social Security benefits and their monthly and annual financial needs. You will want to pay attention to potential tax ramifications of not only Social Security, but other qualified assets as well when structuring income streams.
If you serve the senior market and help create guaranteed lifetime income for your clients, what better solutions exist than fixed annuities and fixed indexed annuities with income rider benefits? Again, your AMO can assist with case development solutions to create a tailored fit for your clients. Work with your AMO to think outside the box, and resist the temptation to always offer just one or two solutions because you are comfortable with the product(s). Your client does not care about the product near as much as trusting the individual and carrier offering the solutions to his concerns!
You have the ability to help clients overcome their health and longevity financial concerns with the guarantees and “peace of mind” only insurance product solutions offer, and there is no shortage of folks that need your help.
Footnote:
1. http://www.limra.com/uploadedFiles/limra.com/LIMRA_Root/Posts/PR/_Media/PDFs/Generation%20chart.pdf
