As target markets go, the baby boomers are a desirable one and it’s not hard to pinpoint why. They’re entering retirement in unprecedented numbers, armed not only with more resources than prior generations but also with more questions. They need financial advice, a fact that many will readily admit. Still scarred by the market crash of 2008, this wave of retiring boomers has demanded a whole new brand of income planning, dubbed, appropriately, retirement income planning. It’s one of the Big Ideas of 2014 in the financial planning space, and savvy advisors are embracing it as a refreshingly holistic strategy.
“[Retirement income planning] draws attention to the real problem: How much can I be guaranteed to have arriving in my bank account each month when I retire?” says Dee K. Carter, one of more than 300 respondents to Retirement Advisor’s recent boomer survey.
To answer this question, advisors rely on an assortment of products, including life insurance (82 percent say their boomer clients are interested in it), fixed annuities (78 percent), mutual funds (42 percent) and variable annuities (40 percent). They also stay in frequent contact with their boomer clients, providing high-touch service that builds trust and a sense of security. Sixty-two percent of survey respondents said they interacted with their boomer clients either extremely often or very often.
Read on to learn key five retirement truths that our survey respondents shared with us. Your boomer clients will thank you.
1. Holistic planning is critical.
We hear it over and over again: Boomers can’t stand the straight sales pitch. They want a high-level plan that will take into account not only the issue of longevity — a real concern these days — but that will meet a multitude of diverse financial planning needs. “Legal estate planning too often gives too little attention to income tax planning,” noted survey respondent Stephen D. Wiley. Retirement income planning involves insurance, financial management/investing, and tax planning. All are inextricably intertwined.”
Rick Peterbok echoed this sentiment: “Knowledge and a complete holistic evaluation of all options is critical for boomers. It’s not enough to simply have a strategy about a product that you understand or feel you want to sell.”
Survey respondent Ed Cofino sees a benefit in this type of planning for clients and advisors alike: “Retirement income planning is a complete financial process, which can lead to more trust, more sales and more referrals. Product sellers leave money on the table everyday.”
2. Even in the deaccumulation phase, diversification is important.
Risk management is critical as boomer clients move out of the accumulation phase, but that doesn’t mean that their portfolio should be entirely risk-free. Gary Mattson coaches his clients in this truth, but only after he has checked all the boxes when it comes to income stability. “Once we have established the clients income needs and flow and demonstrate how they will never run out of money,” he notes, “then it is easier for our clients to understand how their investments would allow risk and position assets effectively for a diversified portfolio with correlated and non-correlated assets.”
Richard Schneider has taken a similar approach as he incorporated retirement income planning into his practice: “[Retirement income planning] allows you to leverage money with very little risk. This gives the risk-averse client the ability to balance and offset riskier investments that they might otherwise avoid.”
3. A variety of income sources provide multidimensional security.
Stocks and CDs may rank low on boomers’ list of desirable investments, but they are nonetheless interested in a variety of financial products. James Tewalt, CFP, notes that the benefits of relying on multiple products are many: “Knowing they have income from several sources gives people assurance, keeps them from worry and enables them to live a less stress lifestyle.”
Survey respondent Jeffrey Heasley agrees that more is often more when it comes to portfolio diversification: “Incorporate all types of investments, if suitable, to the allocation. [There should be] less focus on performance and more focus on income and inflation.”
4. It’s possible to be too conservative.
Resources must be watched closely in retirement, but boomers sometimes fall into the trap of holding on to money too tightly. Bill Lehnertz encourages his clients to cover all their bases, but also plan proactively for where they want their money to go. “The biggest shift is away from focusing on rate of return and focusing on recurring income streams. In addition, I very often find myself encouraging clients to give more or spend more.”
5. Product needs will change.
A good mantra to live by: Choose your products wisely. Robert DiNicola says he’s seen quite a difference since switching to a retirement income planning strategy. “The biggest difference [between retirement income planning and other advisor strategies] is the selection of plans and the content of the products that make up the strategy. I believe in various methods — flooring principles are a good start, then some other combinations of withdrawals and guarantees by using either or both fixed and variable annuities.”
Oscar Rodrigues says his focus on secure products earns substantial trust from clients: “I present safe money places and strategies to help clients reach their objectives using the least volatile products, like fixed indexed annuities and indexed universal life. Since I gave up my securities licenses my business increased because clients know their money will be in safer places (those are their own words). Besides, who needs the red tapes from BDs whose only interests are the profits a rep brings in?”