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How can financial advisors nudge mid-income baby boomers to start thinking aboutand doingincome planning?

“One way is to help them realize that they do not have to be multi-millionaires to work with a planner,” says Thomas Mengel, regional support coordinator with GE Financials Independent Accountants Network.

Based in St. Louis, Mengel regularly advises blue-collar workers and mid-market people in dual-income households. “Many are earning $80,000 to $90,000 a year in combined incomes and they have significant income planning needs,” he says.

However, some of these earners believe income planning is only for the rich, Mendel adds. Others arent sure what income planning is.

Therefore, he says, when working with clients, he makes it a point to show what it will cost if they use a “spend-down” strategy (withdrawals from assets) to finance their retirement years. The numbers often are compelling enough to convince people to start thinking about doing something more than spend down, he says.

His comments coincide with findings in a new survey GE Financial has published on consumer attitudes about income planning. It was conducted by Opinion Research Corporation and completed in March 2003 (see chart).

The findings show that many Americans have unrealistic expectations about the money they need to retire comfortably, says Frank Gencarelli, executive vice president of GE Financial in the Richmond, Va., office.

For example, two-thirds say that, during retirement, they would need 75% of their working income. Yet, in another 2003 survey, Gencarelli continues, “fewer than 25% of Americans age 40-59 indicated they had saved at least $100,000 toward retirement.” (This other survey is from the American Savings Education Council and Employee Benefits Research Institute.)

The GE survey also shows that many Americans are “woefully uneducated” about retirement income planning concepts, Gencarelli says. “For example, 41% are not familiar with the term retirement income planning, and they appear confused about the difference between traditional retirement investment vehicles and retirement income planning vehicles.”

GE intends to use these findings as a “call to action,” says the executive. That is, the companya provider of retirement income products–wants to get the word out to consumers and their advisors about what income planning is and about how it can help people fund their retirement.

“Wed like to create some space in the industry on this, to get more companies on board,” Gencarelli says. “We want to create some buzz.”

One way to do that is to reach advisors about the importance of income planning, says Norm Mindel, executive vice president of GE Financials Independent Accountants Network in Schaumburg, Ill.

Many advisors still shy away from income planning, even if they know about the products and strategies, he says. This can be due to their own confusion about income products and strategies, uncertainty about how to present the subject to clients, or concern that the advisor will be unable to make a living in income planning.

This will change as advisors learn more about income planning and how it can benefit clients and their own practice, says Mindel. “You need to know that this will help you do well for your client.”

Many producers today still are focused on helping people save for retirement, he points out. “So, as word gets around that you are focusing on income planning, you will be able to distinguish yourself from other planners. This becomes your value-added proposition.”

“You can be in the lead,” stresses Mindel. “And you should have no problem whatsoever in making a living doing this.”

Remember, he adds, “If you go with the pack, you will rise and fall with the pack.”

Consumers stand to benefit from dealing with income planners, Mindel maintains. “Thats because most of us are not rational about our own investments. We need an advisor to serve us as a buffer for what is going on today.”

Right now, according to the GE survey, 69% of the Americans do not use a planner to help plan their retirement. Further, 54% do not plan to use a planner in the future.

Those numbers would seem to suggest that income planning will be a hard road to hoe for many planners. But the three GE executives do not see it that way. To them, the findings suggest that advisors now have an opportunity to set themselves apart and to break into a new market.

For instance, Mindel views boomers who totally reject the idea of income planning as “future clients,” not lost sales.

Mengel, of St. Louis, says it is important to keep the persons risk acceptance level in mind when doing income planning. Todays clients are more risk averse than in the late 1990s when aggressive investing was in vogue, he says. Now, many are looking for security and guarantees.

They were burned once, when the stock market plunged in the early 2000s, says Mengel. They dont want that to happen again. As a consequence, “they are becoming more willing to work with someone who will stay with them and keep them from making the same mistake again.”

One approach he uses, in advising such clients, is to select a deferred annuity that has a specific income planning feature. He says he positions it to take the place of the defined benefit plan of the past.

Gencarelli suggests presenting income products (like income annuities) as an asset class, like bonds, equities or cash. Then do an allocation, he says.

As for the bigger picture, Gencarelli is convinced the insurance industry needs to promote income planning in the broad sense. “We should treat it like other movements in the industry,” he says, citing asset allocation as an example. To raise awareness, the movement has to be top down and grass roots, he adds.

His own company is actively involved in this in several areas. For instance, it offers “assisted sales” support, where a company specialist helps reps identify persons in the reps client base who would be good candidates for income planning. And it is developing technology to help reps present retirement numbers and concepts to clients.

This will be an investment, he allows, but he is convinced it will be worth it.

When his father died, Gencarelli says his dad still had assets to his name, despite having lived in assisted living and a nursing home. Gencarelli credits this to the fact that his father had a guaranteed income in retirement, courtesy of his traditional (defined benefit) pension plan and Social Security.

Many workers today do not have traditional pensions anymore, he continues. And, while many have defined contribution plans401(k)s and the likethese dont have embedded income guarantees.

Unless baby boomers set up income plans of their own, they may not enjoy the same level of financial security that his father had, Gencarelli cautions.


Reproduced from National Underwriter Life & Health/Financial Services Edition, September 19, 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.