The financial services industry is all about opportunity. Where do we focus our time, energy and resources to make the biggest impact? Where is the opportunity tomorrow that we can plan for today?
Well, there may be an opportunity you haven’t yet realized, but by the end of the year, many agents will be ready to capitalize on it.
Let’s begin with a quick story:
A couple — Michael and Barbara Clark, let’s call them — have been referred to you from one of your ideal clients. They are a picturesque, healthy, and vibrant couple who are on the brink of retirement. At age 61 and 60, respectively, they’ve saved diligently for retirement, making sure to always live within their means. Working together, Michael and Barbara have a crystal-clear vision of what their next 30 years should look like: a simple country club membership for golf, tennis, and social events; increased time with children and grandchildren; and an occasional vacation to places they’ve never seen, only read about.
But as Michael and Barbara sit today in your office, it’s evident that something is wrong — and after a couple of questions, it’s painstakingly obvious. Their retirement portfolio is down 32 percent from a year ago, and this couple in front of you is lost in retirement planning. They must now make a decision that can be very tough to swallow. Do they retire now with a lower standard of retirement? Or do they delay retirement and build their portfolio back?
And there’s your opportunity.
According to U.S. News & World Report and the Boston College Center for Retirement Research, equities have declined $9.8 trillion since last year. Some of that affected commercial banks and insurance companies, but $7.2 trillion hit Main Street portfolios, either directly or indirectly. Approximately $2 trillion of losses this past year directly struck 401(k)s and IRAs. We’ve repeatedly heard the baby boom generation referred to as the biggest demographic force in American history — and 78 million baby boomers are fully participating in $7.2 trillion of equity losses. Michael and Barbara Clark are far from alone in their situation.
To envision how this will develop in the future, we must first look into the past. Our most relative statistics from the extended bear market of 2000-02 may be able to shed some light. Here are the market value declines from that period:
Even more important for your opportunity is realizing the impact that market losses and the weakening economy of 2000-02 had on the job market. The Center for Retirement Research at Boston College published its findings about this exact topic; responding to the bear market, the labor force participation rate for older workers (ages 55-64) jumped two percentage points — an increase unprecedented in post-war U.S. economic history. In past recessions, we’ve typically seen slow, or even negative, growth in labor force participation. But this time it was different, as the steep decline in market indices may have caused some older workers to postpone retirement and convinced other early retirees to rejoin the workforce.