One of the most exciting opportunities for insurance professionals is in retirement income planning. There are at least 3 reasons for this:

? Demand is increasing for this type of planning. This is especially true for baby boomers.

? Retirement-income planning represents an opportunity for a new look at all financial plans through an income-planning lens. So, it’s a tremendous prospecting opportunity.

? Insurance professionals have a competitive advantage because of their knowledge of insurance and annuity products, which play an important part in the retirement income-planning process.

As an industry, we have spent years preparing for this opportunity. We are reminded that baby boomers, born between 1946 and 1964, will reinvent themselves and the concept of retirement. Every hour, approximately 330 Americans turn 60– almost 8,000 people each day!

From a planning standpoint, the boomers are moving from a primarily asset accumulation stage into a primarily wealth-distribution stage of planning. Many boomers will likely live longer and will lead lifestyles considerably more active than previous generations. Furthermore, they hold the purse strings to almost $15 trillion in retirement assets–money that needs to be managed to provide a lifetime of income.

To take full advantage of this opportunity, life insurance professionals need new sources of information to help educate their clients about the issues–risks and realities they face as they enter retirement. They need tools to help educate clients about the issues, which will help shape the conversation about solutions.

The National Retirement Risk Index

Recently, Boston College significantly contributed to the collective understanding of retirement income-planning problems, unveiling important implications and suggesting potential solutions. The Center for Retirement Research at Boston College, with the funding assistance of Nationwide Financial, developed the National Retirement Risk Index. This is a benchmark for our nation’s retirement preparedness and reflects a broad range of factors, including savings rates, home equity, pension plan participation, plus demographic and economic trends.

The index measures the percentage of households at risk of being unable to maintain a pre-retirement standard of living. And, it projects how much income households are expected to have in retirement relative to their pre-retirement income. The index then compares this “replacement rate” to a target rate that would allow a household to maintain its pre-retirement standard of living. Households that fall more than 10% short of the target are considered “at risk.”

The index reveals that more than 40% of working Americans are “at risk” and are not on track financially to retire comfortably. This assessment includes Social Security and home equity. The researchers cite many reasons, including increased longevity, the decline of traditional defined benefit pensions, lack of investing in defined contribution plans and the failure of most people to save outside of defined contribution plans.

Some implications for insurance planning and practice

The index research has several implications. Some are explicit and some are implicit. What follows are some key considerations for insurance professionals.

First, the index confirms common-sense approaches of investing more and working longer to help mitigate the risks of a retirement income shortfall. For example, it suggests that saving an additional 3% of earnings may reduce the at-risk households by 7%. The index also indicates that delaying retirement until age 67 rather than 65 may reduce the households at risk by as much as 11%.

Whether we like it or not, and whether our clients like it or not, the subject of delaying retirement age is going to be a part of our conversations with many clients. The index research helps educate clients about the potential benefit for them to keep working.

Second, the index research provides the basis for emphasizing the importance of a written retirement income plan. Many investment and financial professionals incorporate such retirement income plans into the financial and estate plan. However, we need to be specific about how the money will be managed in the distribution phase to meet realistic retirement expectations.

Third, from a product perspective, the index research may help clients understand why annuities should be an important part of their retirement income plans. The index assumes annuitization, reverse mortgages and retirement at age 65.

Such strategies, index researchers admit, are not currently part of all retirement income plans. According to the research, if the index assumed no annuitization, no reverse mortgage, and retirement at age 63, two-thirds of the nation would be at risk for retirement preparedness. The index research suggests that at least some portion of a client’s assets should be devoted to products that guarantee income for life.

Fourth, all products in a client’s portfolio should be evaluated as they relate to the retirement income plan. The index does not specifically address this subject. By implication, however, the research shows that insurance professionals need to evaluate how a client’s assets will generate income.

The fact-finding, of course, should consider all assets. Just as one product is not the entire solution in a client’s retirement accumulation plan, one product will not be the entire solution in a client’s retirement income plan.

Conclusion

The National Retirement Risk Index developed by the Center for Retirement Research at Boston College provides new context and a fresh perspective for continuing conversations between the insurance professional and the client. Discussions about retirement income planning and how insurance and annuity products can be used in a plan can help clients manage risk and realize their goals.

For more information on the National Retirement Risk Index, visit the Boston College Center for Retirement Research web site at .