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Boomers Ignore Longevity At Their Own Risk

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When baby boomers hear the longevity message–that more and more people today are living 20+ years in retirement–does this actually impact their financial decision-making?

For instance, does it spur them to revise investment choices, savings, insurance, housing or even shopping habits?

Not necessarily, says Gregory Theis, an investment advisor at Woodbury Financial Services, Homer Glen, Ill.

“I always include longevity planning in my seminars,” he says, “and the people who attend always express interest. But most boomers–those now age 41 to 59–usually don’t do anything about it unless their aging parents are having some difficulties.”

The parents’ problems make longevity issues real, Theis says. “In fact, boomers who see their parents struggle in retirement are probably the only boomers who will do serious longevity planning.”

Other financial professionals contacted by National Underwriter agree.

A 2004 study by the MetLife Mature Market Institute, Westport, Conn., supports this. In analyzing employee benefits trends, the study found that although 46% of boomers do worry a great deal about outliving their retirement money, only 19% had started saving for retirement or had any retirement goals at all.

The same study found that almost half (48%) had not factored longevity into their retirement savings plan.

Another MetLife study, conducted by Mathew Greenwald & Associates Inc., Washington, D.C., and just published, indicates that it’s not just boomers who tune out on longevity risk. Older folks do, too. Specifically, 33% of pre-retirees in the 59-71 age group said they had not yet calculated how much monthly income they will need in retirement.

Boomers do think about the value of their homes and savings they may have, points out Sandra Timmermann, gerontologist and director of the MetLife Mature Market Institute. But they’re not usually thinking about how to spread that out over a lifetime, she says.

“I don’t believe boomers are seeing the risk,” concurs John G. Graham, director of marketing, Nationwide Financial Network, Newark, Del. Financial advisors need to spur clients to look at their situation, he says. “Run the numbers; show them how their finances might look in retirement.”

A specific assessment often gets their attention, adds Keith Newcomb, a financial planner and wealth manager with Full Life Financial, LLC, Nashville, Tenn. “Most boomers seem to hail from the Land of Lake Woebegone,” he jests. “Everyone seems good-looking and strong. They believe they are unique. Even when told about general longevity trends, they don’t believe it will happen to them because they believe they are different from everyone else–special.”

But going through the boomer’s own finances and examining recommendations and benchmarks that will help the boomer live out values and achieve goals often does motivate boomers to change financial behaviors, Newcomb contends.

More and more baby boomers should be receptive to this since, according to Timmermann, they tend to be more willing to seek professional help than were their parents. They use concierge services, for example.

A key point for advisors is that they themselves need to be aware of the impact of longevity on retirement finances, contends Graham.

Some advisors aren’t aware, he says, unless they have had some education on it. Nationwide found that out when it conducted a producer education program last year, he says. (The program had focused on educating advisors on how financial needs change in the different stages of life and how best to address those needs with planning tools and financial products.)

“Many advisors told us they didn’t know longevity should be a concern until we showed why it should be a concern,” Graham recalls. That’s also true for clients who learned about longevity from their advisors, he says.

Now, a year later, Nationwide is seeing the results: a “sharp increase” in sales across all 3 life stages spotlighted in the program, in all product lines. The needs-based approach was critical, he contends, as was the strategy for educating on longevity.

Experts everywhere seem to agree on the importance of client education. Yet, accomplishing that can be a challenge.

It is an involved process, says Graham. The client has to gather all the financials together and bring them to the advisor–the IRAs, annuities, 401(k)s, pension statements, savings, real estate, etc. And the advisor must put all this into a consolidated report.

“This takes time and effort, for everyone,” he says.

Also, “some clients aren’t totally forthcoming with their financials,” Graham says. His experience has convinced him that “the education process works best when a long-term trusting relationship exists.”

Advisors must also deal with other hurdles, such as:

o Boomers really don’t understand longevity or its implications. Even if they grasp that they could live until ages 80, 90 or more, says Theis, “few realize they have to change how they handle their money now in order to have enough money to last for a potentially very long life.”

o Denial. Owning a home may create a false sense of security concerning retirement finances, observes Timmermann. So might expectations of working longer before retiring. (One hopes jobs will be available, health will be good and the economy will be favorable to home values, she notes, but those things are not certain.)

o Focusing on short-term, rather than long-term, issues. MetLife found this to be the case with Americans age 59 to 71, who may focus more on rising medical care costs or stock market declines than on the possibility of outliving retirement savings or needing to care for a chronically ill family member. Other research suggests boomers are doing the same thing.

o Other issues seem more urgent to boomers than longevity. These include paying the mortgage, college tuition, car loans, etc., says Theis.

o Many boomers worry more about their parents’ longevity-related issues than their own. For instance, they worry whether the parents have enough money to care for themselves, says Theis, or whether the boomer will need to spend personal money to take care of mom and dad. (Conversely, the parents’ struggle later becomes a motivator for taking action, he adds.)

o Poor savings rates. Boomers are not building up the savings they need to live the way they want in retirement, says Newcomb. But rather than plan differently, they’ll just say they’ll work longer.

o Inheritance expectations. Boomers may believe they’ll inherit large sums from their parents. But Timmermann cites AARP research showing that the amount transferred may be lower than expected. Also, parents may no longer put a priority on leaving an inheritance, she says, noting the parents’ own longevity is a key factor.

“The wave of baby boomers is coming,” concludes Newcomb, so professional advisors need to be prepared to provide longevity education and doable plans. “We need to start from where the boomer is now, so the person won’t run out of money in retirement.”

If someone refuses to bring the relevant financial documents, “can’t afford” financial planning or otherwise does not engage, that’s a signal the person is not yet serious about it, he adds. It also means “I won’t be able to provide them the best I have to offer.” These people will not become clients, he says.

Who will become clients? Those touched by factors shown in the box.

Boomers generally do not have traditional pensions to help provide a steady retirement income stream, allows Timmermann. But advisors can “show boomers how to plan, including using income annuities as a steady base. What is important, she says, is “not how much you save for retirement but how much you save for income.”

The message for clients: What’s important is how much you save for income in retirement

Spurring Action

When the boomer moves closer to actual retirement age, and when Medicare and Social Security benefits kick in.

==Sandra Timmermann, MetLife Mature Market Institute, Westport, Conn.

When a boomer’s parents live a long time and become at risk for outliving their money.

==Gregory Theis, Woodbury Financial Services, Homer Glen, Ill.

When a boomer sees specific numbers in software programs testing scenarios when the boomer might run out of money.

==John G. Graham, Nationwide Financial Network, Newark, Del.

When a boomer realizes he/she won’t have traditional retirement health and pension benefits, and that government benefits (Social Security, etc.) do not ensure not running out of money.

==Keith Newcomb, a financial planner and wealth manger with Full Life Financial, LLC, Nashville, Tenn.

When the boomer’s employer allows retirement and financial education at the workplace.

==Sandra Timmermann, MetLife Mature Market Institute, Westport, Conn.

When a boomer responds to today’s increased media coverage of retirement income issues and products.

==Sandra Timmermann, MetLife Mature Market Institute, Westport, Conn.