By Cyril Tuohy
Once, not so long ago, it seemed that all anyone in legislative circles talked about was health care reform: how to make it affordable, how to cover 50 million people lacking it and how to rein in galloping medical cost increases.
President Obama was elected on the promise of health care reform. The Affordable Care Act may go down as his most far-reaching policy triumph — assuming the law withstands a legal challenge under review by the U.S. Supreme Court.
Now, though, with universal or near universal health care the law of the land and a vexing public policy challenge (almost) behind us, it seems all anyone wants to talk about is retirement reform, according to experts at the annual gathering of the Insured Retirement Institute.
Robert DeChellis, president of Allianz Life Financial Services, said retirement reform has become “almost as popular as health care.”
It’s easy to see why. The baby boom generation, born between 1946 and 1964, has, until this year, been the largest in U.S. history. There were 74.9 million people between the ages of 51 and 69, according to the U.S. Census Bureau estimates released in December.
Not only are boomers arguably the most powerful voting bloc in the U.S., promises the government made to them are coming due with increasing frequency: Social Security annuity payments and Medicare health insurance reimbursements.
At the other end of the generational spectrum, millennials don’t have much to worry about with regard to health care because they are in good health. However, they need to start allocating for and thinking about funding their retirement years.
All millennials will have to rely on is a defined contribution model to sustain them 50 years hence, when average lifespans extend even further than they do today. Millennials, also known as Generation Y, are currently in the 18- to 34-year-old age group, and are expected to surpass baby boomers in total numbers this year, according to Census Bureau projections. This year, there will be 75.3 million millennials in the U.S.
For financial advisors, those who haven’t contemplated retirement themselves, the changing retirement landscape offers an unprecedented opportunity. The question for financial advisors is: Are they prepared for the changes?
Larry Roth, CEO of Cetera Financial Group, said many advisors have spent their lives pinned to the asset accumulation phase only to find that people — advisors included — need help with the decumulation phase of retirement.
Advisors themselves are facing their own internal demographic shifts: the average age of advisors is around 58, which isn’t young, and too few college graduates are joining the industry ranks to replace retiring veterans.
Roth said advisors need to “capture” people at a younger age as opposed to waiting until workers are ready to roll over their 401(k) balances into individual retirement accounts
From the need to “humanize” annuities and life insurance products, to reaching out to new prospects using online channels, to integrating advisory practices with online or “roboadvisors,” the to-do list for advisors isn’t getting any shorter.
Then there are always questions of costs. “We need to do a better job on costs,” said Bob Steinke, senior vice president at Janney Montgomery Scott, in a wide-ranging session on the future of advisor channels.
Steinke also warned of “mission creep” as variable and fixed index annuities become more complicated and morph beyond older product versions.
Advisors, he said, need to shift their thinking as some millennials exhibit “Depression-era” approaches to investing.
Depression-era investment mentality is characterized by fiscal conservatism which, while necessary during retirement to preserve principal, isn’t the approach to take for investors in their 20s and 30s because the investment gains aren’t enough to outpace inflation.
UBS Wealth Management Americas released a survey of 1,169 adults between the ages of 21 and 36 found that 34 percent describe their risk tolerance as “conservative” or “somewhat conservative.”
The survey also found that 52 percent of the average portfolio was dedicated to cash, an “extremely conservative” asset allocation.
InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].
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