The influential Merrill Lynch Affluent Insights Quarterly survey was the talk of the trade when it was released two months ago because of this number: 61.
Sixty-one percent of people surveyed said they expect to retire later than planned, up from 29 percent in January. Talk about a headline grabber.
But here’s the back story: New thinking from industry leaders suggests that millions of Americans are delaying retirement not because they have to — but because they want to. It’s a fundamental shift that could well reshape the advisor-client engagement.
“It’s important for us to adapt what products we offer, what conversations we have. You’re having very different conversations with people who look at retirement as a second act,” observes David Tyrie, a personal retirement solutions executive for Bank of America Merrill Lynch. “Now and going forward, it’s a matter of having more tangible and pointed conversations — and the advisor has got to be prepared for those.”
Tyrie attributes the big jump in workers pushing back their retirement dates to both the economic downturn and to baby boomers who are redefining exactly what retirement represents to them. As one client told his Merrill Lynch advisor recently: “I do not want to live in a world of ‘I was’; I want to live in a world of ‘I am’ or ‘I’m going to be.’”
For many Americans today, that means working longer in a job they’re passionate about, starting up a new business or downshifting into something part-time. And then there’s the reality check. “Our whole point of view has changed around employment the last few years. If you are fortunate enough to have a job that pays well, people have become more forgiving of the imperfections,” notes Leslie Strebel, managing partner of Strebel Planning Group in Ithaca, N.Y. “I know I have in my own work. There’s this sense of ‘Buck up. Stop complaining.’ It’s an attitude that has really resonated.”
The notion that baby boomers would redefine retirement isn’t new. But, for the first time, there are hard numbers on what this so-called “late-career” life-stage segment looks like. As Laura Varas, principal of the Massachusetts research firm Hearts & Wallets, puts it: “All 55-year-olds are not alike.”
In a groundbreaking new study, Hearts & Wallets identifies 12.8 million households it labels as late-career, defined as investors between the ages of 53 to 64 where the primary breadwinner is not considering retirement within the next five years. Varas and co-researcher Chris Brown say late careerists wish to work until they’re unemployable. “The idea is I want to work as long as I can,” she adds. “Until that happens, I’m good. I feel rewarded. I’m at the top of my game. Why would I quit?” (Notably, the last Merrill Lynch Affluent Insights Quarterly survey did not ask employees why they were delaying retirement in such large numbers but the upcoming one will.)
The Hearts & Wallets survey of more than 4,000 households — and comprising 280,000 data points — also calls into question an industry assumption: that pre-retirees, who are roughly the same age as late-careerists, are the leading edge boomers. In fact, the research shows, the pre-retiree segment — those who identify themselves as within five years of the primary breadwinner stopping full-time work — is significantly smaller than its late-career counterpart: 5.9 million households.
The new thinking around retirement represents a wake-up call for advisors, according to Varas. For starters, she says, financial services providers should talk to late career investors dramatically differently than they do to pre-retirees. And lifestage, rather than age, will play an increasingly important role in financial discussions.
As an example, Varas says advisors should consider more flexible positions on recommended replacement rates for late-career clients.
“What they need and want to know is the bare minimum they need to protect themselves in case they become unemployable. The whole kind of imagery around walking on the beach, flying around the world or buying the vineyard is incredibly damaging. It’s not realistic for what they need,” she adds. “We need a more realistic definition of what that base case to protect yourself is. We need to use legitimate versus aspirational targets, which may not be necessary, achievable or even aligned with investor expectations.”
Clearly, forward-thinking advisors — many of them late-careerists themselves — see the writing on the wall. A recent FA Vision study from Kasina and Horsesmouth shows 73.1 percent of advisors may soon offer client assistance with the “softer” aspects of retirement, up from 44.1 percent today. Among those deliverables: help with second career advice and nursing home placement.
Eric Daugherty, a Kasina principal, says advisors today routinely field questions from clients that have never been asked of them before. “You’re stumped unless you are willing to move into these areas,” he says.