From the December 2011 issue of Investment Advisor • Subscribe!

November 28, 2011

Retirement Reset

What have we learned since the greatest global economic meltdown in history? A recent study from Ken Dychtwald and SunAmerica Financial Group has surprising answers

Photography by David Johnson Photography by David Johnson

If you’ve been an advisor for any length of time, you’ve heard Ken Dychtwald speak. The CEO of research and consulting firm Age Wave was ubiquitous on the trade show circuit prior to the market crash of 2008 (we heard him speak at three separate events in a little over one year).

For those who hadn’t seen Dychtwald in action, their attitude was usually dismissive. “Gee, a presentation from an author and gerontologist about aging and retirement; where do I sign up?”

But the zeal with which it was delivered and its multimedia format punctuated with insightful and often amusing video had audiences, by the end, cheering for the new retirement paradigm Dychtwald described—one of continual reinvention, new career paths, new advanced degrees, new adventures. It was the very opposite of the “short rest then death” stereotype that until then dominated the retirement discussion, and it was one that baby boomers rapidly approaching retirement age were eager to hear.

We haven’t heard much from Dychtwald since the economy went bad; like so many others, our retirement interest largely took a backseat to more immediate matters. But it wasn’t as though Dychtwald slowed down. He continued to add to the list of the 16 books he’s written. He produced his second PBS special, “With Purpose,” in 2009. He joined The Huffington Post as a frequent contributor. In short, he continued spreading his message, one that read “as life spans increase, so too do new opportunities.”

We wondered how his message had changed in light of all that had happened—if at all. Was it stale? Were his predictions right? More importantly, did those audiences still cheer?

A chance press release gave us an opportunity to find out. Over the summer, SunAmerica Financial Group released a 10th anniversary update to its widely cited “Retirement Re-Set Study” from 2001. The original study offered critical insight into retirement attitudes as the dynamic, rebellious, but by no means monolithic boomer generation prepared for a time few could grasp—old age.

[Read the 2011 Retirement Re-Set Study.]

Given the volatility in the decade since, Dychtwald rightly saw a follow-up as a “no-brainer.” He sent a late-night email to SunAmerica Financial Group President and CEO Jay Wintrob as well as Larry Roth, Advisor Group chief executive (owned by SunAmerica). He had an answer by 7:00 the next morning: “Yes.”

“What a crazy decade it had been,” Dychtwald says. “First 9/11 happened, and then the economy went crazy, the stock market went backward, we had all sorts of shifts and changes. But we had the advantage of doing a very thorough study [in 2001], and we could go back and ask the same questions layered in with all sorts of new queries and concerns.”

Dychtwald assembled the same players from the original study, which he describes as “a reunion akin to ‘Seven Samurai.’” They include Humphrey Taylor, chairman of The Harris Poll, to help with logistics and operations, and Dychtwald’s own head of research, an individual formerly employed with the CIA who’s been with Age Wave for 15 years. Together with the rest of the team, they gathered (and pored over) 800 pages of analytics.

The Result

Good luck getting a synopsis from Dychtwald. Superficial isn’t in his vocabulary. Everything is put into context, most likely a consequence of his Ph.D. and one reason he’s so popular within the industry.

“What’s a good analogy? In astronomy there’s what’s called a blue star,” he begins cryptically. “A blue star is when a star is born. And apparently every now and then, with the help of these massive telescopes, you can see the birth of a star. That’s what we felt like looking at the American public’s retirement. We were seeing the birth of a different paradigm for retirement right under our eyes: morphing, altering, transforming.”

But just when you think he’s headed for drive-time psychobabble, he snaps back.

“Prior to the 1930s, for all intents and purposes, retirement didn’t exist,” he says. “The word wasn’t used in modern language; you can’t find the word in books. The general idea was that people worked throughout their days. They earned a livelihood, had a feeling of self-worth (a non-trivial piece of the puzzle) and work acted as a social connector.”

Yet something happened in the mid-1930s, Dychtwald explains, that is often forgotten. People think Social Security was crafted in order to give older adults a comfortable passage. Not so, he says. “The larger part was that the unemployment levels reached 25%, which presented an interesting challenge. If young men and women can’t get jobs, the entire ‘American engine’ stalls. They don’t have kids, buy houses and cars and generally don’t consume.”

Social Security provided assurance, at least in part, for retirement and therefore allowed them to rev the engine. This generation worked and saved and had a bit of rest toward the end of their lives, resulting in a period between 1935 and 1975 that Dychtwald calls Retirement 1.0.

“In the 1970s, however, retirement morphed for a number of interesting reasons,” he says. “One of them was that people began to get wind of the idea that longevity was on the increase. The other thing that happened was that the financial circumstances of older adults completely reversed. It used to be the highest poverty levels in America were among the elderly. By the 1970s, the elderly had the lowest poverty levels in America.”

Why? Dychtwald says they were influenced by having grown up in the shadow of the Great Depression, and as a consequence they were very frugal. But suddenly older adults became a market segment. Insurance companies began to sell to them; cruise lines began to reach out to them.

“For that reason, from 1975 to 2010, people viewed retirement as better than work; it was an entitled period of leisure,” he says. “You could afford it, and what you couldn’t afford, the rest of the country would gladly pay because that was the deal.”

So what happened these last few years?

A few things have “hit that model hard,” Dychtwald says. First, life expectancy has continued to increase; living 25 years after retirement is no longer a fluke.

“How many people do we know in their 50s or early 60s that have so much money that they can afford to stop working and still live for another 25 years on their savings?” he asks. “Not many. People have also had enough chances to watch people play out their retirement to see what happens; it’s an experiment that has come alive. They’ve watched their moms and dads, grandparents, aunts and uncles. For high-energy, stimulated and stimulating people, retirement is boring. It’s simply not satisfying. They’ve looked at their retired relatives and said, ‘That’s not for me.’”

The survey

Hard data backs Dychtwald’s narrative, and the survey finds that client attitudes toward retirement (and their future in general) are surprisingly positive given the broadside they recently took. Key highlights include:

  • Today, 54% view retirement as a new chapter in life, rather than a winding down—a significant increase over the 38% that held a similar view a decade ago.
  • However, retirement is being postponed: Pre-retirees say they now intend to delay retirement by five years—from 64 to 69—triggered in part by increasing longevity, as well as the recession and financial need.
  • Retirement no longer means the end of work: Almost two-thirds say they would ideally like to remain productive and include some work in retirement to stay active and involved.
  • Financial peace of mind is now six times more important than accumulating wealth: 82% name it their key financial goal.

“That 54% of Americans now see retirement as a whole new chapter of their life is huge,” says Larry Roth, CEO of Advisor Group. “They’re saying, ‘What do I want to do now that I don’t have to work?’ Or, ‘Do I want to redefine retirement to include working part-time, working full-time, working in shifts or maybe one or two seasons a year?’ To me that’s a big change. Ten years ago, only 38% held this view.”
Roth notes that although investors are optimistic and excited about retirement, their optimism is tempered by sensible concern.

“Ten years ago, no one was thinking about what was happening in Europe, and nobody knew what PIIGS were,” he adds. “It was something that you might get in a grocery store if you were hungry for bacon. Today, they’re more optimistic about longevity, health care, where they would like to live and the way they’d like to spend their time.”

But, he says, they’re also much more aware of their environment from an economic standpoint. They’re aware that living longer will cost money; they’re learning that their kids moved out, but are still “on the payroll.”

“They’re aware that they need to be much more astute investors, just like they are more astute about diet, exercise and eating right.”

And this, according to Roth, is the opportunity for advisors.

“This is as exciting as it gets; this is the biggest opportunity for financial advisors ever,” he says with no hint of hyperbole. “Even more so than they expected.”

The reason, he says, is that 10 years ago the trend was moving toward “do-it-yourselfers,” even during the tech implosion. But after the market ride of the last few years, they’re realizing it’s difficult to do and that, maybe, Roth says, they not very smart about it either.

Dychtwald agrees, noting, “In almost every conceivable way, people who had a financial advisor in their corner turned out far better than people who tried to do it themselves. We asked in the survey if people are displeased with their advisors after what’s happened this last decade. Fully 68% of people who had advisors said that they felt they were far better off than [they would be] had they done this themselves. And only 4% feel they would have been better off being on their own.”

“This is the most exciting part about it,” Roth says almost giddily (for Roth anyway). “Many of the advisors we work with have been in business 20-plus years. When they got into the business, they were in the early stages of independent financial advising. They invented their own niche and ‘learned on the job.’ Now this next generation, or next leg up, in financial advising is here. The advisors who are in the best position to take advantage of it own a practice and have confident, knowledgeable staff with the required expertise.”

But like investors, Roth’s optimism and enthusiasm is tempered with concern.

“One area that worries me, just a little bit, is that entrenched advisors have built their businesses primarily around asset accumulation,” he says. “Keep in mind, we found 10 years ago that most advisors thought they were in the retirement planning business because they simply helped with accumulation and rollovers. Now, however, it really is about retirement income.”

As a result, highly successful, expert advisors need to take a second look at their business model to see whether or not it’s designed for retirement income, Roth suggests.

“Many will want to change their model slightly to accomplish both, and I think that’s the big, big change. The survey shows that the majority of people going into retirement don’t have a financial advisor. They know they have a need, and they know they have a problem, and they think they know what to do about it, but they don’t even know where to start. They’re going to seek advice.

“I’m sorry to be extra enthusiastic,” he says self-consciously, “but I think the stars are in alignment for the first time ever; it’s pretty cool.”

One final question; are plans in the works for another survey in 2021?

“That’s interesting,” he says. “I don’t have any plans for that, but I will tell you between now and then, if people in our business don’t prosper, they should just take a hard look in the mirror.”

“I’ll tell you this and I don’t think I’m wrong about what I’m about to say,” Dychtwald adds. “There’s never been a more robust opportunity in front of the financial services industry as there is now. This is the perfect storm.”

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