Many articles portray baby boomers as babes in the wood, or even idiots, where retirement planning is concerned.
Again and again, the stories tell how boomers hold wall-to-wall mortgages, don’t save, and are relying on Social Security for retirement income and Medicare for long term care funding.
Now comes a somewhat more positive picture from the 2006 Lincoln Long Life Survey.
Conducted for Lincoln Retirement Institute, Philadelphia, by Princeton Survey Research Associates International, Princeton, N.J, the survey sampled 1,004 boomers aged 42-60 who have $75,000+ in annual household income.
What Your Peers Are Reading
It shows that such boomers are not as much in la-la-land concerning retirement as the boomer stereotype might suggest. However, it also makes clear that boomers aren’t fully up to speed on retirement realities either. How to advise these more enlightened but not yet up-to-speed boomers is the subject here.
On the positive side, the survey found these boomers realize they must rely on personal savings to fund their retirement, says Jon A. Boscia, chairman and CEO of Lincoln Financial Group, which created the Institute.
Also, “84% feel prepared for the future in terms of having enough financial resources to be able to retire on their own terms,” he says.
The chart shows other areas where the boomers displayed retirement awareness and preparation.
Still, several other findings suggest that these more affluent boomers do not yet know what to do about what they know.
The boomers are “just scratching the surface,” contends Harry Horn, a financial planner with Lincoln Financial Advisors in Baltimore, Md.
In a sense, boomers “don’t know what they don’t know,” he continues.
For instance, 46% said they are counting on equity in their homes or investment properties to help fund their retirements. Among 40-year-olds, 50% plan to rely mainly on their primary residence for this.
Boomers do see that home equity is a valuable part of the financial plan, Horn allows, but many have misconceptions about their ability to use the equity to enhance retirement lifestyle.
To illustrate, he relates how some boomers come to his office feeling “very proud” that their home equity is about $750,000. “They think they will be able to turn this into a stream of income.” Then, he says, “I explain it’s not that simple. I explain that the money they get from downsizing to a smaller home or condo comes at a cost.” This includes the cost of buying the new home and selling the old one, moving, setting up new services, buying new furnishings and so on.
Many times, after factoring in all costs, the clients haven’t released enough money to enhance their lives, he says. Furthermore, they must now live in smaller quarters with less privacy and no back yard.
Boomers need to work with financial advisors to not only to ask the right questions about home equity, but also get the right answers, Horn concludes.
Another survey finding uncovered a stumbling block in this area, however.
As shown in the chart, 75% of boomers did say they will consult with an advisor before they retire. However, only 5% of those who have already retired say they are open to the idea of getting professional help with financial decisions for their remaining retirement years.
“There’s a disconnect there,” says Horn. “I think they don’t understand what advisors do. They (boomers) need ongoing maintenance (in their financial plan), not a one-shot deal.”
Advisors need to educate boomer clients about this, he says. “We need to explain that planning is an ongoing process. It deals with short and long-term issues and circumstances that change. It’s continuous.”
David Kittredge, the director of the Lincoln Retirement Institute, agrees.
“Advisors need to be marketing themselves so that boomers understand what it is they get when they see an advisor,” he says. This knowledge will help deter them from deciding not to see an advisor after they retire, he predicts.
There is a lot of risk and opportunity involved in this education, Kittredge indicates.
Over $1 trillion will be leaving qualified plans and looking for a new home when boomers retire, he explains. The risk to the industry would be loss of this business, and the opportunity would be for advisors to make their practice “a destination” for this money.
Boomers face risk, too, if they stop seeing an advisor after they retire, Kittredge says. Boomers will have a lot of money at risk, and they will need to be sure that whoever is managing this money is doing it in a way that best helps the boomer, he says. Advisors should be pointing this out to their clients.
Some other areas that advisors need to work on with boomers include:
Retiring before age 65. The survey found that 58% expect to retire before age 65, a goal the Institute says is at odds with the popular notion that boomers will need to work longer to fund their lengthy retirements.