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Households headed by boomers have a net worth of about $17.5 trillion as of 2001 -- 41% of the net worth of the entire U.S. population. Currently, $2.8 trillion of these assets are set aside for retirement. Initially, that might sound like a huge number, but in reality, it means that boomers' households have accumulated only $64,000 on average in retirement assets.
Another concern that has surfaced with retirement is that the average life span for Americans has risen to 77 from 69.7 in 1960. People are living longer than they ever have, but have not saved enough money to live those extra years without worrying about their financial security. This lack of savings coupled with longer life expectancies reveals the increased need for professional financial planning.
It is imperative for seniors to work with a financial adviser who understands their needs. This is because future retirees will have to rely on their own savings more than ever before. Social Security, company pensions, and personal savings used to be viewed as a stable "three-legged stool" of retirement income. The stability of two of these income streams is increasingly being called into question. Enormous pressure will be placed on Social Security as the boomers enter retirement, and on the employer-sponsored pensions, which are disappearing as an employee benefit. This weakens two-thirds of the stool's support system, leaving personal savings as the only dependable source of income during retirement.
In 1950, more than 16 workers were paying into Social Security for each retiree. That ratio has decreased to three workers per retiree. By 2017, the surplus that Social Security once had will be completely gone. Medicare covers the same demographic that Social Security does, but the deficit will grow even larger for Medicare because of continually rising health care costs.
Over the next 75 years, Social Security's deficit will reach $11.1 trillion. Medicare's Part A and B deficit will equal $47.7 trillion, and the prescription drug benefit will add another $17.7 trillion. Combined, the total will be more than $76.5 trillion, seven times the size of the U.S. economy today.
The nation's private pension system also is providing fewer benefits. Only half of all workers are covered by an employer pension. Defined-benefit pensions, in which employers provided retirees with a monthly income for life, used to be standard. The Pension Benefit Guaranty Corporation (PBGC) has insured all or part of these benefits. It went from a $9.7 billion surplus in 2000 to a $23 billion deficit in 2004. Single-employer plans are estimated to be underfunded by at least $450 billion.
Personal savings through defined-contribution plans, such as Section 401(k) plans, most likely will become the primary source of retirement income for baby boomers. Employers usually match all or part of workers' contributions up to stated limits, but the responsibility lies with the employee to plan, save, and invest wisely for their own retirements. A survey by Watson-Wyatt found that one in four eligible employees does not participate in their 401(k) plan. Among those who do participate, not even one in 10 contributes the maximum amount.
In the Guardian Life and Harris Interactive study, only 24% said they were on track to have enough savings throughout their retirement years. On the other hand, 16% saved more than 20% of their income in 2003, while 23% said they saved nothing. Other current trends, such as life expectancy and rising health care costs, suggest that perhaps the retirement age should be raised to 72, or boomers may need to work longer or part-time to support themselves.
As these changes occur, many seniors do not understand what to do to make it through retirement financially. Government programs that they thought they could once depend on may not be able to provide the same level of benefits in the future.
Advisers must be prepared to address seniors' needs and concerns. One way to do that successfully is through education. As an adviser, it is essential to make sure that you are well versed in the latest financial tools and techniques to meet and understand your clients' needs.
The Chartered Advisor for Senior Living(TM) (CASL(TM)) designation is a professional credential that The American College recently began offering. It is specifically designed to help advisers help senior clients make the right decisions to assure financial security in retirement. It is the only comprehensive credential in senior planning. Preparing and saving for retirement requires a lot of decision making and not every person understands all of the options available to them to help them save. CASL designees have the skills and education seniors can rely on to assist them with important decisions that will shape their quality of life.
Financial advisers can learn through CASL training how to engage their clients and prospects in an essential dialogue on the importance of providing security for their nest eggs. They can do this by transferring the potential risk of a long-term illness to an insurance company or developing a plan to use their assets in a methodical way to pay for their care.
CASL education prepares the financial adviser to help clients in the accumulation phase of pre-retirement and to be judicious in the distribution phase. The American College has prepared CLUs, ChFCs, RHUs, and CFPs to help their clients recognize the risks of premature death, illnesses, and disabilities. Now, with the specialized training of the CASL designation, advisers can educate clients about the risk of outliving their assets or having an investment portfolio devastated by a long-term illness in their "golden years."
The CASL curriculum was developed with input from a panel of industry experts. It teaches practical skills and puts special focus on the psychology and lifestyles of senior clients. HS 350, "Understanding the Older Client," is one of the courses offered that focuses on the unique financial issues that seniors must prepare for and deal with. Understanding work and retirement, family relationships, housing options, and health care issues that are relevant to seniors is imperative for advisers so they can be sure they are making the best decisions for their clients.
The American College instituted the CASL program at a most opportune time -- with the largest U.S. population cohort about to retire. The designation provides financial advisers with an opportunity to expand their business in this rapidly growing market. The credential enhances an adviser's credibility and professional reputation and opens up new doors to maintaining lifelong business relationships with clients. I believe the CASL will be the designation of the 21st century.
Another designation option for financial advisers to consider is the Certified Senior Advisor (CSA), offered by the Society of Certified Senior Advisors. The CSA curriculum provides a broad-based knowledge of the health, social, and financial issues that are important to seniors, and the dynamics of how these factors work together in seniors' lives. It teaches professionals what's important to seniors and how to keep their interests first.
Robert J. Pagel, CASL, CLU, ChFC, RHU, LTCP, began his insurance career in 1961 and has dedicated the past 14 years to providing long-term care insurance for consumers. He graduated with the first class to earn the CASL designation in 2004.
