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Baby boomers are breaking ground once againbut not in the way that theyd envisioned. As the first wave of boomers enters retirement, many are finding that theyre woefully unprepared for the financial realities of this new chapter in their lives.

When I meet with new clients who are nearing retirement, I find that they go through a period of “shock and awe.” Theyre in awe of the amount of money they have amassed for retirement. For many people, this is the most money theyve had in their lives. Because of thatand the fact that theyve been contributing to their 401(k) plans for yearsthey feel that theyre in a good position financially.

After some pre- and post-retirement income and expense analysis, however, the shock of realizing that they are responsible for making that money last for the next 25 or 30 years hits them. Often, they find that their retirement income will be significantly lower than they had expected. Many of my new clients with pre-retirement incomes of between $60,000 and $90,000, for example, must face the fact that their post-retirement income will be in the $30,000 to $60,000 range.

How did they get in this mess?

Baby boomers find themselves in this situation for a variety of reasons, not the least of which is longer retirements. Nearly half of todays retirees are retiring sooner than planned due to health problems or corporate layoffs. That fact, combined with increased life expectancies, means that most boomers will spend 25 to 30 years in retirementsignificantly longer than the 15 to 20 years their parents spent in retirement.

Boomers also have less guaranteed retirement income than their parents. Why? Reduced Social Security payments, of course, but also due to a change in the way workers approached their careers. Because todays workers change jobs several times during their lives, theyve accrued a very small benefit, if any, in a corporate pension plan.

These factors lead to an even greater reliance on 401(k) plans. As the first class of 401(k) savers to “graduate” into retirement, boomers are realizing how crucial this savings tool has become. Unfortunately, this realization is coming too late for many who simply didnt save enough. Of the clients in their 50s who come to me for retirement planning help, most have been deferring just 6% or 7% of their salaries into their 401(k) plans and have an average 401(k) balance of around $100,000clearly not enough to ensure adequate income replacement at retirement.

Recent market conditions didnt do boomers 401(k) balances any favors, either. After riding the bull market for several years, many boomers were too heavily invested in stocks and took a big hit when the market turned bearish.

With all of these factors working against them, its no wonder that retiring baby boomers are more than a little stunned at their financial situation. Our job as their financial advisor is to help them get past the shock and develop a plan for generating a monthly income stream.

Because this generation has such unique challenges, they need unique solutions. One approach that I had success with is using a combination of fixed annuities and variable annuities or mutual funds.

I used this approach with a client who had retired several years ago, receiving a lump-sum buyout. He knew he would work part time to stay busy but was cautious about investing his nest egg. He preferred to remain in the equity markets but also needed a stable stream of income. To meet those goals, I rolled $25,000 of his savings into a fixed annuity and $75,000 into a variable annuity. Over time, we transferred more and more of the variable annuity assets into fixed annuities for guaranteed income.

Although this approach was effective, it was also very complicated and time consuming to design and manage. But now, some carriers have developed special programs that automate this entire process.

The key advantage to this strategy is that it allows clients to keep control over their money. They can make decisions about how long they want to be invested in the variable markets, when they want to transition to fixed income, what risk level theyre comfortable with, and the amount of money they need to get out of the program. These four components are all flexible.

The boomer generation has looked to financial advisors like you and me for help in saving for retirement, it only makes sense they will come to us for guidance on turning what theyve saved into a lifetime income. With creativity, we can help them achieve their goals while also helping them achieve peace of mind.

is a Rushville, N.Y.-based senior financial representative, registered representative and investment advisor representative of Principal Financial Group. He can be reached at garychard@worldnet.att.net.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 24, 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.