Retirement income planning is a necessity for baby boomers, many of whom lack traditional pensions but hope to maintain an active lifestyle for decades.
Yet nearly all of the industry’s attention has been focused on the most affluent boomers, who probably have already been working with a multitude of financial service professionals, own a variety of investment and insurance products, and are well on their way to a secure retirement.
It is the boomers in their mid-50s and people in their 60s who are nearing retirement and who fall into the mid-market ($50,000-$99,999 in household income and $50,000+ in household financial assets) who could be among the most attractive prospects for agents and advisors seeking to build their retirement planning practices.
Why? Many mid-market boomers have substantial assets in their retirement plans, including 401(k)s. These assets will need to be tapped to produce retirement income, because Social Security and defined benefit pension plans won’t be enough.
These individuals are increasingly concerned about managing retirement risks and would be interested in the kinds of advice and products that advisors can offer, according to LIMRA research. Up to now, many have flown below the radar screens of financial planners who deal exclusively with high-end clients; less than half have consulted with a financial planner.
Unlike some high-income boomers, these boomers may have a greater need for, and interest in, income solutions involving annuitization. Consider: 30% express lack of confidence in having enough money to live comfortably throughout retirement, compared to 16% of those earning $100,000 or more.
Further, a greater proportion of mid-market pre-retirees than higher-income pre-retirees would prefer to spend more of their savings during retirement and leave a smaller inheritance for heirs instead of tightening their belts and leaving more to their heirs or charity. These individuals will therefore need to generate more income.
In addition, 60% do not anticipate receiving enough income from Social Security and defined benefit pension plans to cover basic living expenses. On average, they expect these two sources to contribute only 54 cents of every dollar of anticipated retirement income. The remaining income must be generated from their savings, including retirement plan balances.
About half of those expecting a gap between lifetime income and basic living expenses say they would be willing to convert some assets into lifetime income to fill this gap. Most often, this portion would represent 20% of their financial assets.
Among those age 55 to 64, the income need is greatest for those having mid-level financial assets ($50,000 to $249,999); they also have the greatest interest in annuitization (see chart).
What, if any, retirement income planning activities have middle-market pre-retirees accomplished? Although 80% have done at least some planning, only 17% have created a plan to convert assets into income. Only 15% have put together a formal written plan to manage their income, expenses, and assets in retirement.
The majority of these pre-retirees regard themselves as “good” or “excellent” when managing savings and investments. Since only about one-third of all pre-retirees are “very” interested in managing their own savings and investments, the remaining pre-retirees need assistance in this area.
In addition to needing help with savings and investments before retirement, they will also need professional help managing their retirement income.