For the past 50-plus years, the financial services community has largely-and understandably- focused its efforts on helping individuals accumulate wealth in preparation for buying houses, for educating children, and ultimately for their retirement.
However, as baby boomers (those born between 1946 and 1964) begin to exit their traditional careers, financial advisors and the institutions who serve this market must now address the new and very specific and very different need of this large demographic wave-to ensure that a person's retirement income will last as long as they do.
The baby boomer numbers are staggering and sobering all at the same time. By 2010, 13% of the population will be retired, with 6,000 more people added each day, according to Cerulli Associates. Yet, the most startling statistic by the analyst firm is that 61% of households leaving the workforce will be unable to replace 75% of their income in retirement-the minimum that most financial experts argue is needed.
Moreover, people are spending significantly more years in retirement than ever before. A 65-year old stands a better than 50% chance of living to at least 85 and a 30% chance of reaching 90, according to a recent survey conducted by MetLife. The added longevity of seniors today also means that, unlike generations before, retirees continue to remain active, in some capacity, long after their careers end.
In just the last two years, the financial services industry has recognized that change must come in order to meet the unique demands of baby boomers.
Though many seniors have never thought of working with a financial advisor, a great many more are starting to question if they can adequately maintain their current quality of life with a do-it-yourself website or by following the recommendations of a well-polished media guru.
The complex modeling and analysis that needs to be done will send baby boomers to the doors of financial institutions and financial planners in great numbers.
The key here is that the industry must understand the issues of providing income-for-life and it must be able to offer unbiased and defensible recommendations within the context of a plan.
The stand-alone product recommendations will go the way of the Edsel, the10-cent 1st class stamp, and the full-service gas station.
Dave Freitag, CLU, ChFC, is the vice president of client development and Ron Smith is the vice president of business analysis for Financial Profiles, Inc., which offers the financial services industry comprehensive financial planning software, and consulting, training and support services. For info: www.profiles.com.
