Distribution Planning: The Product Of Choice For Retiring Boomers

Between employer-sponsored plan accumulations and personal savings, baby boomers will have an estimated $4.3 trillion in assets to be repositioned for retirement. They will be seeking expert advice.

As the first baby boomers began turning 50, financial professionals focused on accumulation objectives. While the stock market was bullish, it was easy to invest for the long term without focusing on how those investments would be distributed to provide retirement income.

Times have changed, and todays astute financial professional is initiating the transition from accumulation expert to distribution planning expert.

Most retiring individuals have an employer-sponsored retirement plan. They will need advice on whether to take lifetime payments from that plan or transfer the money to an IRA. For most individuals, this will be the single largest investment they own.

A key issue for retirees is deciding which investments to liquidate for living expenses. Too often, retirees choose the wrong investments to liquidate first. Rather than dip into their IRAs and annuities, retirees often will liquidate mutual funds, stocks and bonds–unaware that while these investments generate taxable income during life, they pass efficiently to the next generation at the retirees death, and should be used last.

A distribution-planning advisor who can lead the retiree through the confusing maze of income-distribution options will bring great value to the retiree.

Boomer Retiree Psychology. Baby boomers are independent; they dont like to be told what to do. They want information, advice and counseling so they can make informed decisions.

An unprecedented concern of the boomer generation is the knowledge that they will be living longer than previous generations. In 1950, the average life expectancy was 68.2 years. Thanks to health improvements and lifestyle changes, the average life expectancy in 2000 had increased to 77.1 years. By 2025, it is predicted that 20% of America will be age 79 or older.

Knowing they likely will live longer, many boomers began accumulating for retirement earlier. Fluctuations in the stock market during the past few years, however, have caused many boomers to lose significant portions of their savings. Even though they know they will be living longer and need to invest for the long term, many boomers are now risk averse.

In addition, the multitude of competing concerns and tax laws facing boomers in retirement will be confusing. Boomers will need to weigh preserving dollars that may be needed for longer life expectancy against spending those dollars to protect against long term care needs and estate taxation. Financial professionals who understand boomers opposing needs bring great value to their clients.

Planning is the Product. Asset managers need to remember that planning is the product they are selling as baby boomers move through the wealth distribution and transfer phase of their lives. Quality fact-finding will separate average planners from successful ones.

Retirement is an emotional event–husbands and wives may not envision the same post-retirement lifestyle. Quality fact-finding means more than just listing clients assets. It means discovering the wants and needs of both individuals in their retirement years. Quality of life issues need to be addressed as well. The more details financial professionals know about their clients, the better prepared they will be to advise clients on how to plan income flow from their assets when their income is fixed.

Retirement will be different for baby boomers than preceding generations. Todays retirees have moved in large numbers to retirement communities in warmer climates and settled into conservative lifestyles.

Boomers are unlikely to follow that pattern. Boomers generally are physically active and know they are going to live longer. Many will stay in their own communities and continue to work, at least part time. Furthermore, boomers tend to be focused on themselves, and this will lead many of them to pursue dreams of their youth.

Asset managers will need to explore how clients individually define retirement. What are their hopes and expectations? Are they planning to start a new business venture? Will they spend their time volunteering? Traveling? Are they going to continue working? Where are they going to live?

Discover what excites clients and what strikes fear in them. Have they always wanted to volunteer overseas? Are they afraid of outliving their savings? Learning answers to such questions allows asset managers to develop a distribution plan that will realize clients dreams and minimize fears.

Distribution Planning. Since money tends to move when people retire, that is the time many key decisions are made. Retirement, however, is not a single event. It is shifting into a transition process that may last 20 years or more.

Two key concerns of retirees are asset protection and income management. Increasingly, retirees want to create and preserve liquidity so they can maintain flexibility and control of their money.

Baby boomers want advice. They need information on:

? tax laws and changes;

traditional and Roth IRAs;

stretch IRA rules;

regulations on minimum-required distributions;

estate planning concerns; and,

long term care issues.

Boomers are more likely than previous generations to utilize the services of a financial professional. Asset managers must focus increasingly on face-to-face support and advice.

Planning is the product asset managers must sell. Planning is the value they bring to the boomer. Becoming a distribution planning specialist sets them apart from the crowd, and it will make them the obvious choice for their clients.

Donna K. Nearhood, J.D., CLU, ChFC, is the affluent markets consultant for Columbus Life Insurance Company, Cincinnati, Ohio. Her e-mail is Donna.Nearhood

@ColumbusLife.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, August 4, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.