By Cathy Weatherford
Annuity sales in 2010 crossed the $200 billion mark and 2011 sales continue to climb in double-digit leaps. This is a good time to be an annuity seller and, with the dramatic stock market fluctuations of late, it’s a good time to be an annuity buyer.
While many savvy individuals with an eye on retirement security have incorporated annuities into their portfolios, many others have not. Yet, 50 percent of all pre-retirement boomers surveyed stated that they would put most of their assets in an investment that provides guaranteed income for life, even if it pays a low return, according to an Insured Retirement Institute (IRI) report. And boomers who own insured retirement products (92 percent) believe they are doing a good job preparing financially for retirement.
Reaching out to those in or nearing retirement, such as the baby boomer population—79 million marching toward retirement, is an opportunity that advisors should explore. IRI research found that many boomers, of which 4 million will be turning 60 every year for the next 18 years, are concerned about retirement preparedness. Although many options are available to boomers, IRI found that those boomers who own annuities are far more optimistic about reaching their retirement income goals, with 86 percent expecting to have enough money to live comfortably during retirement.
Advisors who are knowledgeable in insured retirement strategies would do well to assist boomers as they attempt to decipher the ins-and-outs of retirement income sources, including Social Security Insurance (SSI)—which 41 percent of boomers view as a major income source during retirement. However, besides being under siege, SSI and the processes to claim it can be difficult at best. Understanding the pros and cons of early SSI payouts that can result in lower amounts of income over time and building a complementary portfolio of products that will meet one’s retirement needs can be a daunting task. That, combined with an IRI survey that found three out of 10 boomers are not only uncertain as to when they will retire but cited concern about having sufficient assets as a top issue, is a major concern. Therefore, it is not surprising that IRI learned that boomers prefer an investment, such as an insured retirement product, that protects principal and guarantees income.
Furthermore, as the population ages, experts foresee an ongoing and substantial transfer of wealth over the next decade within the 60-plus population. According to “The MetLife Study of Inheritance and Wealth Transfer to Baby Boomers,” conducted by the Center for Retirement Research at Boston College in December 2010, two-thirds of all boomers will receive an inheritance during their lifetimes. This report estimated that $8.4 trillion is expected to pass via bequest to boomers, of which $2.4 trillion has already been received and $6 trillion is anticipated. But findings also show that, in most cases, that inheritance won’t be enough to sustain individual boomers, (estimated average inheritance per boomer is $64,000), throughout their retirement years.
Clearly, some boomers will inherit substantial wealth, but 23 percent of boomers expect a bequest to comprise only a small part of their retirement income, making it critical to have a retirement savings plan. An inheritance, combined with median retirement account holdings presents a chance for an advisor to make a difference in the retirement lives of boomers. And managing this infusion of wealth effectively will require the expertise that a financial advisor can provide.
Boomers In The Middle
Middle-income boomers, those with median retirement account holdings between $11,000 and $35,000 and median stock holdings between $9,000 and $13,000, are largely overlooked by advisors, and are especially in need of advice as their savings and retirement funds are typically less than what they will need for retirement. Since their net worth may not be as substantial as other boomers, they therefore require guidance unique to their position.
Advisors who tend to overlook middle-income boomers should consider this—more than 70 percent of boomers earning under $100,000 are homeowners and have savings and investments, with retirement account holdings that need to be professionally managed. Yet, 57 percent have not used advisors or planners to help them coordinate their disparate finances for the long term. This leaves a broad market for financial professionals to tap.
The IRI survey also notes that only 35 percent of middle-income boomers gauged their own likelihood for having enough saved for retirement as extremely or very likely. Six out of 10 boomers (all income levels) express concern about outliving their retirement savings while seven out of 10 are “afraid” that their household is not saving enough to cover future needs.
Those are the concerns of millions of people preparing to move into their retirement years. It is imperative for them to have professional financial guidance to design a workable savings plan that fits within their current budget and also meets their future needs. Not only will their retirement funds have to cover daily living expenses, but also the rising cost of medical care as they age. The expertise that financial advisors provide to clients while planning and investing in future retirement can make the difference between a daily struggle to make ends meet and living a comfortable retirement. And boomers who have consulted with a financial planner are more likely to be confident about their retirement security than those who have not, according to IRI research.
A Financial Advisor’s Role
IRI has identified reasons, such as procrastination, as to why boomers do not seek professional investment advice, and strongly believes it is very worthwhile for advisors to reach out to this group. With little confidence in their ability to plan for retirement or in their knowledge to navigate through a sea of investment vehicles shadowed by recession-related difficulties, boomers are in dire need of retirement income advice. The nearly untapped market of 60-plus boomers presents an opportunity for financial planners to provide meaningful retirement planning while expanding their client base.
But financial planners need to be aware: IRI found that boomers were especially receptive to financial professionals who were involved and engaged at every level of the investment process. And, although investors don’t expect their advisors to have all the answers, they do expect them to find the right answers for their clients’ needs. For the 60-plus crowd in particular, a face-to-face exchange is preferred over an online or other electronic communication.
IRI also found that roughly six in 10 advisors use a different philosophy to manage assets for retirement clients than they use for clients still accumulating wealth. Advisors who recommend conservative products will find clients among the Boomer generation as retirees and pre-retirees have become much less aggressive investors. They like the idea of “protected growth” and “lifetime income” as well as the guarantee annuities provide. And more than six in 10 advisors are seeing new clients coming from boomers.
Overall, boomers believe that financial planners are making the right choices. Ninety percent of those who use planners believe they are doing a good job in preparing financially for their own retirement, compared to 63 percent of those who do not use planners.
There is no doubt that this is the time to educate boomers about the benefits of insured retirement strategies. Many of these strategies can help boomers grow their retirement nest egg without the worry of stock market fluctuations as well as provide a guaranteed income for life. With the right investment, there’s no reason why boomers can’t enjoy their retirement years. Advisors have the opportunity to help them live comfortably throughout their golden years.