Close Close

Retirement Planning > Retirement Investing

Guiding Boomers To Phased-In Retirement

Your article was successfully shared with the contacts you provided.

A surgeon that Anne Rorapauch knows retired some years back and quickly became a “lost soul.”

Not satisfied with retirement, he returned to work, on a non-surgical basis, at the same group practice where he had worked before.

“Now, he sees patients, does evaluations, makes referrals and follows progress, and life is meaningful again,” says Rorapauch, a financial planner and tax consultant at Insurance Group One Agencies, Inc., Columbus, Ohio.

Stories like that are becoming more common for financial professionals as increasing numbers of baby boomers approach, or move into, retirement.

Whether due to good physical health, low savings, boredom or need for adventure, planners are seeing more and more boomers looking for ways to phase into retirement via reduced, altered or new types of work. In response, financial advisors are starting to look at how to help with the financial aspects of that.

“Sometimes, we don’t think about the financial aspects of major life events,” points out Michael Sullivan, president of 50-Plus Communications Consulting, Charlotte, N.C. But advisors should, he says, because having a good financial plan helps make the goal possible.

Advisors also should jump-start the discussion, he says. “Ask the client, ‘What do you want to do in retirement–in the first 5 years, the next 5 years, and so on?’”

Breaking down the time horizon often brings to light the fact that the boomer actually would prefer to move into retirement in steps, Sullivan says. Knowing this, the advisor then can offer some ideas on how to make that happen.

“Some clients may say, ‘Hey, I’ll never be able to retire. So, what can I do?’” Sullivan continues. “That can open up the phased-retirement discussion.”

Boomers’ needs and preferences are not the only things fueling phased retirement. Employers and benefits insurers are getting on board, too, says Jim Rathburn, vice president-business development at ING Re, Minneapolis. For instance, some employers have begun exploring how benefits might change to accommodate phased retirement.

Many carriers have not yet undertaken thorough reviews, he allows, but the likelihood is that this will change in time, as the workforce changes. The U.S. Department of Labor, he notes, is predicting that the percentage of workers over age 55 will increase from 14.3% of the working population in 2002 to 19.1% by 2012.

Boomers are facing a much different employment market than they did when first entering the workforce in the 1960s and 1970s, points out Rorapauch. “Back then, many employers were eager for older workers to take early retirement, so the companies could make room for the boomers–who were just starting to work.”

But now, she says, “there is no great swell of workers” behind the boomers. So, the employers increasingly are going to look to the boomers to work longer. Helping this along is the fact that many boomers have greater health and energy than did their same-aged forebears, she adds.

As boomers age, there will be more and more calls for part-time work and reduced hours, predicts ING’s Rathburn, indicating that discussions already are beginning to circulate in the insurance industry on how employee benefits might be changed to accommodate this.

One change that’s getting some attention is relaxation of the “actively at work” definition for group life and accident insurance, Rathburn says. This will force a re-thinking of group life pricing and reduced minimum-hours requirements, he predicts.

Underwriting is being re-examined, too, with an eye to mortality improvements, he says, noting that boomers are generally healthier than previous older worker groups.

Also, says Rathburn, carriers may face increasing pressure to make exceptions when evaluating worker populations. Traditional underwriting generally calls for no more than 10% of the volume to be constituted in retiree coverage, Rathburn explains.

But today and going forward, there will be an increased number of retirees as a percentage of total volume. “Carriers will have to be both creative and prudent in designing benefit options,” he concludes.

But, despite the good health that many boomers enjoy, Rathburn notes that having more older people working may also result in a rise in accidental death rates for the over age 65 segment. Insurers will need to study the impact of this, too, he says.

These are not forecasts, he emphasizes, but are likely changes insurers will need to evaluate.

Meanwhile, advisors need to sharpen their skills in discussing what phased retirement might be like for clients and how it could work, say advisors.

Rorapauch says she opens the discussion by recognizing that “it is a transition.”

Then, she counsels boomer clients to look carefully at what their income and expenses will be. “This is very basic. I ask them to think of the budget they would like to have, and at a bare-bones budget.”

She also impresses on clients that they should expect to go through a period of acclimating to retirement. “Then, I ask, how do you plan to spend your time, if you are no longer employed?”

This is where the discussion often turns to exploring ways to phase into retirement–through part-time work, consulting, and so on–and how to adjust finances.

“Sometimes, when we get to some numbers, I ask: Can you live with this?”

It is important for the advisor to be candid, Rorapauch says. “Ask the client to consider the full picture–the physical situation, health prospects, how the client might cope if faced with dependency.”

All this can be “hard to swallow,” she allows. “None of us wants to recognize the possibility of our own limitations, and we must also recognize that we really don’t know what will happen or when.”

Many times, if clients have not been saving all along, she adds, “they get to age 50 and they say, ‘oh my gosh, how am I ever going to retire?’” That’s when phased retirement planning makes a lot of sense.

In others, the discussion stirs up basic feelings, about wanting to have meaning in their lives, says Rorapauch. “These clients want to have the time and money to do what they want, something that is stimulating physically and mentally.” The doctor mentioned above is an example. Finding meaningful work was the chief driver for him to enter a phased retirement mode.

“These people don’t intend to retire at 65 or 68,” she says.

Small business owners are often interested in phased retirement, too, she points out, noting that some will go into some sort of consulting. “Sometimes, I urge them to find out if they can receive certain employee benefits from a phased arrangement.”

Whatever a boomer’s preferences or situation, she concludes, “try to make the point to the client that ‘this has to be your plan, not our plan.’”

Boomers looking for ways to phase in to retirement via reduced, altered or new types of work

üUse words that depict people maintaining their independence.

This is the key concept for selling investment products. It is especially important that aging boomers feel they have choices and future possibilities.

üGive them several investment options and let them decide.

Boomers want things simplified, but they don’t want to lose control. They want to make the decision.

üRelate new concepts to what they already know.

Communicate using words that provide anchors to previous concepts. “Have you considered organizing your personal investments in terms of asset allocation like you have with your 401(k)?”

üSelf-fulfillment is a key driver for many boomers.

Notice expressions of motivational need for self-fulfillment–changing career, living differently, residing elsewhere and pursuing an avocation.

üUnderstand their causes.

Many boomers share an orientation to social consciousness and want to be connected to families, friends and society. Tailoring personal investment goals to contribute to certain causes may be important.

üShow them how to do it.

“Ms. McGuire, you are 49 today. If you invest $2,000 per year for the next 10 years, with market returns, you’ll have $ ___ in that account. That’s enough for you to…”

Source: Michael Sullivan, 50-Plus Communications Consulting, Charlotte, N.C.