According to economist Jeffrey Brown: "People can expect to live one-fourth to one-third of their lives in retirement. This requires a lot of planning. The challenge is to make a nest egg last a lifetime in the face of uncertainty about how long one will live and what future expenditures will be."
These are startling figures, especially when you factor in the fact that in 2006 the oldest of the 78 million baby boomers will turn 60, according to the U.S. Census Bureau. What is their net worth? More than $17 trillion dollars!
A recent LIMRA report, "Cracking the Code -- Strategic Approaches to the Retirement Market," summed up the state of the insurance industry and hence, the industry's underlying opportunities:
- It's a market, not a product.
- It's not a product, it's multiple products.
- It's more than income planning.
Simply stated, while many of us have focused solely on the accumulation phase of retirement planning, our industry is on the cusp of a retirement revolution because the oldest of the baby boomers are preparing to live the remaining one-fourth to one-third of their lives in retirement.
It's a market, not a product.
With boomers nearing retirement, staggering statistics abound:
- By the time the last baby boomer turns 65, the 65-and-over population will have doubled since the onset of the millennium.
In 2000, there were 35 million persons over the age of 65, representing 12.4% of the U.S. population. It is projected that the number of seniors will:
- Exceed 40 million by 2010.
- Grow to 54.5 million in 2020.
- Climb to 78 million, or 20% of the population, by 2030.
- In 2000, the 65 to 74 age group was eight times larger than it was in 1900, the 75 to 84 age group was 16 times larger, and the 85-plus age group was 34 times larger.
- About $10 trillion will transfer to the baby boomers from their parents over the next 50 years.
- Baby boomers nearing retirement, and even retirees, have inadequate plans for creating their retirement paychecks:
- Seventy-six percent of consumers in LIMRA's Consumer Preferences for Retirement Planning Advice study (68% retirees and 85% non-retirees) do not have a plan to transform their retirement savings into a steady stream of retirement income.
Out of necessity, a shift is on the horizon. As more and more people face the realization of potentially outliving their assets, they'll need to consider seriously alternative plans. Those nearing retirement will need to determine if old "tried and true" ways are the ways to go.
For example, let's examine the concept of retirees relying on periodic withdrawals from investments. Persons planning to rely on these will risk running out of income if withdrawal rates are too high or investment performance too poor. Poor investment performance in the early years of retirement might have a devastating, long-lasting effect on retirement income.
It's not a product, it's multiple products.
Given the pending influx of retiring boomers, I believe we'll soon begin to see agents adopting different selling methods. In order to assist their clients through all phases of retirement planning, they'll need to take a more holistic approach versus a purely transaction-based approach. And with that shift, agents throughout the industry will find it imperative to adjust their focus from helping clients accumulate assets to helping clients manage new risks and create income.
As consumer needs shift and consequently those of our agents, Old Mutual Financial Network (OMFN) will continue to work closely with our key distribution partners to design products that meet our agents' needs. Together, we'll prepare for this looming shift to income planning strategies. While we believe we're well on our way -- primarily because of the fact we've consistently ranked as the number 1 provider of payout products -- we also believe there's much to be done to make products even more beneficial.
Wealth accumulation strategies, of course, will continue to be a top priority. But just as we successfully balanced our product portfolio over the past three years to include a diverse range of products, we further will balance our product mix to ensure the agent is armed with the most competitive and innovative payout-minded products.
It's more than income planning.
Tomorrow's retirees will be watched closely as they face challenges unseen by previous generations. Whereas past retirees could rely solely on one stream of retirement income (for example, a company pension), the coming onslaught of boomer retirees will need to rely on everything from Social Security to Section 401(k) plans to personal savings to working in retirement. Also, once in retirement, retirees will need to consider which route to take to preserve their retirement income. There will be no conventional retirements in the future.
Us and You
As a company dedicated to delivering innovative and balanced financial solutions, we are primed to satisfy the need for quality, reliable products to the nearly 78 million boomers (70% of whom are considered middle income) currently in the accumulation phase and quickly nearing the post-accumulation and payout phases of their lives. In 2006, when the oldest of the 78 million boomers turn 60, I want Old Mutual Financial Network to be among the companies on their short list of prospective insurers. With a solid distribution system, a national sales team focused on delivering results, a dedicated service center, and a knowledgeable employee base, I believe we can -- and will -- be the company of choice for middle market America. Our ability to help consumers solve their needs and take personal accountability throughout their lives ultimately will equate to success and market preservation.
Bruce Parker, CLU, ChFC, joined Old Mutual Financial Network (OMFN) in February 2003 as senior vice president and chief marketing officer. Shortly therafter, in April 2003, he was appointed as president. Before joining the OMFN, Mr. Parker served as the senior vice president in charge of distribution for Jefferson Pilot Financial. A true proponent of the insurance agent and managing general agency distribution, Bruce started his career as a producer, qualifying for the MDRT for three consecutive years in the 1980s.
