The headlines are everywhere:
"Retirement Account Balances Plummet"
"Older Americans Working Longer, Studies Show"
Across the country, financial advisors face boomer clients who have significantly slimmer retirement accounts than they had once hoped, and are asking themselves, "How can I fix this?" Here, three agents share stories of actual clients who were facing retirement woes -- until their financial advisors stepped in to save the day.
Assisting high-net-worth boomers
Ben Rovee, owner, Strategic Financial Designs (representative of Penn Mutual)
Ben Rovee has worked with the boomer market for more than 15 years. For his current clients, everything comes down to planning.
"Back in the '90s, when the markets were rolling, no one thought that anything bad would happen," he said. "Back then, people thought they were going to get returns of 30 percent forever. People had never experienced a down market, so they thought they'd never have a down market."
Rovee said that, although he doesn't have a crystal ball, he tries to go through a series of scenarios with his clients to make sure that every base is covered. He considers the package he's created and asks such questions as, "What if the market crashes?" and "Are you willing to work longer?"
"When we start working with someone, we understand that it's not going to be a bed of roses moving forward," he said.
But sometimes, Rovee will receive a call from a new client who's already lost money to the economy. That was the case with a recent client of his, who we'll call Jim. Jim had assets totaling $4 million, but after the market crash, his total wealth was $3.2 million. Jim had planned to live on the $120,000 per year in interest that his $4 million of assets would produce. But with assets now totaling $3.2 million, Jim started looking at alternatives -- how could he make his $3.2 million produce the $120,000 annually that he wanted in order to have a happy retirement?
Rovee saw several options. The first was to shift focus and have Jim live off both the interest and the principal of the $3.2 million. But in that scenario, the money would run out sooner, and though Jim is in reasonably good health, he had no plan in case he outlived his assets. Then, of course, there's the issue of a legacy -- if Jim spent his entire principal during his retirement, he would have nothing to leave to his heirs.
What Rovee decided to do was create a protection plan for Jim using a combination of asset insurance and annuities. He carved out $2.4 million and set it aside in a single premium immediate annuity with an inflation protection rider.
"$2.4 million on a 65-year-old will provide $120,000 a year forever, until that person dies," Rovee said. "And that's contractually guaranteed; we've eliminated future market risk -- and, by the way, we've tacked on an inflation rider."
Of course, there's one problem with the annuity approach -- when Jim dies, the company will take the money, leaving nothing for his heirs. That's why Rovee purchased a whole life policy with the additional $800,000. He added a long term care rider to the life insurance in order to protect against the risk of a future long term care event -- with a few additional payments, Jim would finish his payment schedule in 10 to 12 years, said Rovee.
And if, later in life, Jim decides he wants to live a slightly richer retirement, he can take dividends off his whole life policy.
"It's kind of like a chess game," Rovee said. "I can have fewer chess pieces on the board, but depending on how I position them, I can end up with a winning game."
Helping boomers after a job loss
Stephanie Sherman, certified financial planner, Prudential
Stephanie Sherman has become very good at working with clients to re-evaluate their retirement plans -- over the past few years, she's helped many people adjust their retirement expectations after losing their jobs.
Recently, Sherman worked with a couple in their mid-50s who had hoped to retire in their early 60s. One of them had lost their job and had been out of work for longer than expected. As a result, the couple dipped into their emergency fund and their retirement savings.
One of the first things Sherman did when she met with the couple was look at their financial needs and figure out exactly how much the unemployed spouse needed to earn in a new position.
"What often happens when someone leaves a job as a CFO or CEO is that they feel like they have to move into a similar position, salary-wise, otherwise they won't make it," Sherman said. "But for many clients, that job just doesn't exist anymore. So we were able to figure out how much they had to make [at a minimum] and still meet their retirement goals, instead of simply replacing the job that was lost."
Sherman also helps her job-loss clients decide what to do with their 401(k)s and pension plans. Boomer-age employees have often accumulated a significant 401(k), and Sherman suggests rolling that into a variable annuity -- which is just what this couple did. While they were concerned about the amount of time it would take to build up retirement funds at the same time they were rebuilding their emergency fund -- and about taking risk in a volatile market -- a variable annuity was able to give them lifetime guarantees and present-day accumulation, she said.
In the end, the couple walked away feeling much more confident about their retirement future and ability to provide for themselves in the present.
"In the right circumstance, variable annuities really can provide a tremendous amount of relief and the opportunity to take some risk when you're not really ready to take risk," Sherman said.
Life settlements solve a real estate nightmare
Christian Evulich, vice president of business development, Amrita Financial
Since Christian Evulich specializes in life settlements and premium financing, most of his clients are a little older than the boomer bracket of 47 to 68. However, he recently helped one California resident who got badly burned by the real estate market. In 2008, this client had a net worth of more than $2.5 million. One year later, his worth had fallen to less than a million.
"The problem was that, even though all the properties he owned were above water, once you factored in transaction costs, they weren't really worth anything," Evulich said. "They'd been refinanced to death."
The client did have a universal life insurance policy, however, so Evulich suggested a life settlement. Although the client was only 68, he had health impairments that could help obtain a more favorable settlement. Evulich considered his overall situation and how much he would need to turn his troubled assets around, and calculated a reasonable expectation of what the policy might vet.
"We were able to shop the policy around and get him a $150,000 settlement, and that was enough to get him out of the water," Evulich said. <<
Heather Trese is a freelance writer who writes frequently about the insurance industry. She can be reached at email@example.com.
Why Should You Care About Baby Boomers?
- Baby boomers make up 28 percent of the U.S. population
- A boomer turns 60 every seven seconds
- Most boomers plan to stop working by the time they turn 70
- Most boomers expect to live at least two decades after turning 60
The top six concerns of baby boomers are:
- Having enough money to retire
- Overall financial health
- Having enough energy to do what they want
- Having enough money for health care
- Taking action to prevent disease
- Getting good advice from doctors