Boomers Spending Addiction: Its Like Taming A Sweet Tooth
By Jim Connolly
When baby boomers approach retirement income planning, most want to know, “what can I spend?” says Colleen Walsh, a certified financial planner and CPA based in Farmington, Conn. “Spending is an issue with boomers.”
There are 2 opposing forces at work, she points out. These are lack of savings and a desire to spend. “Those 2 forces can spell disaster.”
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Many financial experts note the same thing. Boomers are confronting a financial issue that is equivalent to children having to decide whether to eat their dessert now or hold off until later, they say. Their first instinct may be to go for the sweet now, say planners and company representatives, so the response needs to be the equivalent of taming that sweet tooth, by applying careful income planning and industry offerings to facilitate that planning.
“There is definitely a difference in [the thinking] between generations,” Walsh says. “The older generation is keen on preserving principal because of what they have experienced in their lives.” But boomers are part of a generation that is bombarded with marketing, she adds.
And, she continues, “Baby boomers have a hard time thinking for themselves. If everyone on the street has an SUV, they want one.” This need goes beyond keeping up with the Joneses but is based in what they think they need, she says. “They think they need that SUV to make their baby safe,” she cites as an example.
The key to working with boomers on income planning is to get them to hold onto principal in the early stages so that there will be more later on in their retirement, Walsh says. Say the ideal withdrawal rate is in the 4%-5% range, she says, then the more they withdraw in the early stages, the harder it will be to withdraw at that rate at later stages in life. This point is important, she says, because, in general, principal is not enough to get someone through retirement.
To prepare for retirement, behavior modification such as budgeting may be needed. If that is the case, the key is to have the modification come from the client. Helping the boomer client take action also requires addressing perceptions about what the future needs will be. “Perception of security” is powerful, she says. “If you feel that you need $3 million to retire, the only way you will feel secure is if you have $3 millionwhether that is what you need or not.”
Walsh does note, however, that not all boomers are spenders. There are some clients who “cant spend without a justification process.” Such individuals need to be aware that not accessing income can result in the loss of goals, she says.
There are clients who want to make sure that there will be an inheritance to pass on to their family and loved ones, says Diane M. Pearson, a certified financial planner who is the director of financial planning and a financial advisor for Legend Financial Advisors Inc., Pittsburgh.