Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
Most advisors look to seniors as a core part of their client base.
That’s why it’s essential to understand how boomers are going to transform retirement, just as they have redefined every other stage of their lives. Let’s look at three new pieces of research and the seven implications they carry for retirement planning.
A leading researcher’s perspective
Michael Adams is founder of Environics Research Group, a leader in social values research and author of a recent book on boomers in retirement. He contrasts the attitudes towards retirement of today’s early boomers (aged 53 to 62) with the previous generation of retirees, who were in their sixties in 1992. As an example, he looked at today’s intentions for retirement among boomers compared to early retirees 20 years ago. Boomers are dramatically more likely to plan to engage in active outdoor pursuits, explore exotic places and take classes to develop their interests.
They’re also more likely to be concerned about having enough money throughout their retirement; six in 10 intend to work in retirement, almost twice the level of retirees in 1992.
This will lead to stresses as boomers’ “I want it all and I want it now” mindset clashes with their ability to pay for this – and will also challenge advisors in developing retirement plans to fund some of those planned activities.
Not their parents’ retirees
A recent Merrill Lynch survey of affluent American boomers aged 46 to 64 provides hard data on the extent to which boomers are planning to operate entirely differently in retirement than previous retirees.
Here are some of the survey findings among these boomers, all with investments of at least $250,000. First of all, they were asked to compare their expectations to their parents’ retirement:
- 86% plan a more active lifestyle
- 84% say their retirement will look different
- 72% expect a higher standard of living
Digging deeper in the kinds of activities boomers anticipate in retirement confirms some of the data from Michael Adams’ research:
- 70% plan to keep working
- 32% expect to pursue additional professional success
- 26% anticipate to take courses and continue their education
- 24% plan to learn a new trade
- 20% expect to start or further their own business
I recently wrote an article on another recent research study – sponsored by US Trust – that reinforced the dramatic difference in priorities for boomers compared to previous generations. Investors with at least $3 million were asked what they wanted to achieve with their money. Financial freedom and financial security ranked at the top – no surprise there. Then came travel and improving relationships with family and friends. Past generations would have given priority to leaving an inheritance – wealthy boomers ranked it number five, just ahead of “having fun” in sixth place …. Proof again that these are not your parents’ retirees.
Gender differences in retirement expectations
The Merrill Lynch survey also pointed to significant differences in how men and women expect to spend time in retirement. Here are the responses among affluent men and women who are not yet retired about the activities they plan to pursue once retired:
|
Women |
Men |
Gap |
| Travel |
86% |
66% |
20% |
| Pursue a hobby |
74% |
60% |
14% |
| Be involved in community |
64% |
43% |
21% |
| Do charity work |
62% |
41% |
21% |
| Start or further own business |
14% |
24% |
(10%) |
Seven implications for retirement planning
There are a number of critical implications from this research that put pressure on existing retirement plans:
-
Reexamine the assumptions on retirement spending
The conventional thinking on spending in retirement was that there would be a burst of spending in the immediate years after retirement on things like travel, after which health issues and the fatigue associated with age would lead to less active lives and lower spending.
That may in fact be the case with affluent boomers … But it’s clear that most will be dragged into their rocking chairs kicking and screaming. It’s possible that the appetite for spending in retirement won’t abate, but will continue longer than is currently anticipated – putting stress on retirement plans that don’t account for this.
-
Dig deep on each client’s retirement thinking
Just as no two clients are alike before retirement, no two will be alike in retirement. Clients with similar backgrounds and in similar financial situations can have entirely different plans for retirement. If you haven’t had a detailed conversation with clients about exactly what they visualize in retirement, now’s the time to have that chat. And be particularly alert to differences in plans and expectations between spouses.
-
Factor in the impact of health costs
Adding to the possible strain on retirement budgets are new medical advances that are extending lifespans – over the past hundred years, life expectancy at birth has increased by a remarkable 30 years, from under 50 in 1900 to 78 for a newborn child today. If you have a reasonably healthy couple as clients, there’s a good chance that one or both will live well into their 90s or beyond.
The downside is that this longevity comes at a cost – with 80 year olds lining up for hip replacements, it’s likely that we’ll see more boomer retirees writing checks to get timely care.
Meanwhile, although science is extending seniors’ physical vitality, progress on mental capacity has been slower. There’s alarming data on the incidence of dementia after age 70; this will put pressure both on families’ ability to cope as well as the ability to fund the quality of care that most retirees and their families want.
Given the magnitude of uncertainty, it’s impossible to factor all of these possibilities into a retirement plan with any accuracy. For clients who can afford long term care insurance, the best route to reducing the risk of health issues of this kind may be to invest in that kind of insurance.
-
Encourage clients to consider extending full-time work
In some cases, a pre-retiree’s financial situation is such that money won’t be a concern regardless of how long he or she lives – but given extended lifespans and the desire to pursue active and potentially costly pursuits, those clients are relatively rare.
Last year I spoke with Alicia Munnell, Director of the Center for Retirement Research at Boston College. During our interview, I asked what advice she would offer baby boomers contemplating retirement. Her answer was simple: “Most should work as long as they possibly can.”
We’re all creatures of habit and it’s natural to expect the future to look similar to the immediate past. While that may be true in some aspects of our lives, it won’t be true of boomers in retirement – and to serve them effectively, advisors will have to discard preconceptions about retirement from the past and embrace a very different reality.
conducts programs to help advisors gain and retain clients and is an award winning faculty member in the MBA program at the University of Toronto. To see more of his written and video commentaries, go to www.clientinsights.ca. Use A555A for the rep and dealer code to register for website access.
Read more articles by Dan Richards
