Baby-Boom Retirees Want Advice On High-Balance IRA Rollovers
As baby boomers prepare to retire and roll over their retirement plan accounts, asset managers prepare to attract them as clients.
“Targeting High Balance Rollovers,” a report by the Spectrem Group, Chicago, says asset managers will have about $2.7 trillion worth of retirement plan rollover money to work with over the next five years, when the first baby boomers turn 59 1/2.
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Many producers are poised to serve these potential clients, largely because fewer than half of high-balance 401(k) participants say they have received rollover information from their plan, says Laurie Cochran, Spectrem director and author of the report.
“For nearly half of the individuals with balances over $100,000 who opted for a rollover, the advisor was the most important source of information in deciding what to do with the money,” Cochran says. “Among high balance rollover candidates who tapped an advisor for counsel on a rollover, only 8% reported having met the advisor through their retirement plan.”
According to the report, “The greatest opportunities for providers of investment services are in the high-balance rollovers. In 2000 for example, nearly 80% of the $400 billion that was eligible for rollovers was in accounts with balances over $50,000.”
Barbara Hume, vice president, Metropolitan Life Insurance Company, New York, agrees there will be a large market in Individual Retirement Account rollovers over the next five years. One of MetLifes priorities in targeting this market is “to focus on face-to-face support, not through the Internet,” Hume says. “Our field force goes out in a real commitment to building financial freedom for everyone.”
“We give information on tax changes, how to do direct rollovers, what the tax benefit is with Roth IRAs; we give life advice, tailored for people who need help investing their IRAs,” she says.
MetLife is working on several programs that target the baby boom retiree market. Among them is market analytics, a vehicle through which industry databases are reviewed for companies that could benefit from direct-mail programs and educational seminars for their soon-to-be retirees.
“We presently work with 87 of the Fortune 100 companies, and we tailor for them employee support solutions,” Hume says. “Lets say theyre downsizing and letting people go, a lot of them have large retirement programs. We tailor those.”
Another program used by MetLife is asset allocation modeling, designed to help employees who are eyeing retirement determine if their risk tolerance for investments is conservative, moderate, or aggressive.
“We look at fixed annuities, mutual funds, and then variable annuities as a third alternative for the IRA marketplace, so we walk them through to see what rollover is best for them,” Hume says.
Retirees who have many assets might want to consider the “stretch” or “legacy” IRA, another option MetLife helps with, Hume says. This investment vehicle allows retirees to stretch the benefit over their lifetimes or the lifetimes of their children, so it becomes a “legacy” they can leave to them, Hume says.
Dave Evans, vice president of Independent Insurance Agents of America Inc., Alexandria, Va., says an agent working in this market should keep up with changes in rollover tax law.
“In January the IRS promulgated new regulations on the minimum required distributions,” Evans says. “It provided more flexibility regarding taking distributions. It also allows people to take less out at 70 1/2 in most cases, and so thats good news.”
There are many software packages currently available that can help agents break down the tax laws involved in rollovers, says Evans.
In addition to keeping up with the changes in tax law and specifics of retirement asset management, agents can best serve their clients by keeping in mind the psychology of the retiree, Evans says.
“Even though it seems like a particular niche, there are broader issues people have to think about in looking at large rollovers,” Evans says. “It involves knowing their objectives, estate planning, whether they should take more or less out of the account.”
Agents should assess whether their clients have long-term care insurance and Medicare supplement coverage, or Medigap, Evans says.
“That would influence greatly their planning, because the assets could be more at risk if they havent provided for those contingencies,” Evans says.