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Selling to Seniors

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What we call “seniors” actually includes multiple generations with a vast spectrum of historical experiences. The senior in her 80s will have lived through the Great Depression, which likely instilled in her frugal behavior. Meanwhile, the recently retired senior may be more optimistic and less likely to have experienced severe financial hardship.

What does this mean for the financial advisor? Simply, we can’t advise all seniors in the same way. People who lived through the Great Depression and those who did not require different guidance.

Memories of the Great Depression

Take the client in her 80s who was afraid to eat out, even though she could afford it. She could remember what it was like not to have money for food, and she was concerned the economy would get worse. She was pessimistic and wanted to save every penny, just in case.

Meanwhile, she had a five-figure sum in a money market account that she was afraid to move because she didn’t want anything to happen to the principal. Her solution was to keep the money safe and not spend it.

My solution centered on gently making my recommendations:

  1. My primary goal was to help her get better returns. I offered her guaranteed interest rates in a fixed annuity that were higher than those offered by her local bank. I then added some other investments with low volatility. This gave her growth plus liquidity, which was of comfort to her.
  2. I created a budget for her, gently showing her how she could afford to transfer a certain sum each month to a checking account for her to spend. This way, she felt she had permission to enjoy the fruits of her labor and savings. She didn’t realize what her true financial situation was — she just feared running out of money.
  3. I connected with her children. This made her feel confident in the strategy, getting a second opinion from someone she could trust. Also, the elderly are often vulnerable to unscrupulous advisors. By getting the children to buy in, I covered myself as an advisor. It also allowed me to build relationships with them for the future.

The takeaway: With this age group, decision-making is not going to happen right away. A relationship needed to be built, and trust needed to grow. Also, this age group likes to read documentation and educational material to support your recommendation and provide evidence that what you’re saying is a good decision for them. The main thing is to take it slow. Don’t go in and try to take over all their assets because you feel you could manage them better. Deal first with what they need right now, and as the relationship develops, make further recommendations that would be helpful to them.

Baby boomer optimism

On the other hand, consider a client in his 60s with a money market account that had about the same amount. He was optimistic overall and felt things had already hit bottom. But he had hoped his money market account would have grown more than it had. He was concerned that at the current rates, he was behind on his retirement savings plan and would eventually run out of money. He wanted to put the money in a financial instrument with higher risk and higher returns. At the same time, he had never been truly without and was continuing to spend as he had in the past.

In a nutshell, he said he was afraid, but he wasn’t acting it. He wasn’t factoring in the possible impact of inflation, taxes and health care costs in 20 years time. He wanted his lump sum to last a lifetime, but he wanted to maintain his income of $8,000 a month, since that provided his current lifestyle.

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My overall approach was that of tough love:

  1.  In this situation, you have to show the client projections in black and white, so that he understands that things could get worse economically. Share with him that with the lump sum available, he wouldn’t be able to withdraw $8,000 a month and keep up with inflation, increased taxes and increased health care costs. You have to show the client the reality of his decisions — in this case, project the year his money will run out and ask what he will plan to do then.
  2. In addition, I had my client prepare a retirement budget to determine how much he really needed to live on, versus what he’d like to have. The effort clearly showed where his excess spending occurred and the need to restructure his income to pay down some heavy debt.
  3. Finally, we broke his retirement needs into three phases — his 60s, 70s, and 80-plus. This would include guaranteed income to cover fixed expenses and financial tools that provide an opportunity for growth to cover discretionary expenses.

The takeaway: This age group has lived in a world of easy credit, often with poor financial discipline. The client may have put off financial concerns until later in life. You need to be tough and show the reality that he could run out of money in a few years should he continue with his current spending. Don’t be afraid of hurting feelings. You are helping them say no to inappropriate spending. If they don’t like what you say and prefer to listen to the advisor who’s painting the best-case scenario, don’t worry. That advisor will deal with an upset client in a few years when he runs out of money. 

Universal fears

There are similarities between these types of seniors — their fears are typically the same — but how they respond to those fears varies. Here is how to address two of those fears.

The fear: You may hear a client in his 60s or 70s express concern about financial stability if his spouse passes away. Social Security is lost, as well as pension in some cases, if there is no survivorship.

The solution: Life insurance may be the answer to replace the Social Security and, if necessary, the pension. While clients older than 60 might think the premiums on life insurance at their age are prohibitive, often guaranteed universal life insurance can work because it is cost effective and the coverage lasts a lifetime (unlike term insurance). Also, the premiums don’t increase (unlike term insurance).

The fear: Concern may be expressed that no one will care for the senior in her old age. This is a very real fear for those in their 80s — they have seen friends and family go into full-time nursing care. If clients of this age do not have a financial strategy in place to fund such care, this can be a source of worry and perhaps financial hardship for them or their children later on.

The solution: Work through the client’s financial situation and work out what they could afford to pay toward their care. If they do not have sufficient assets to cover cost out of pocket, consider other financial tools to cover full or partial payment for at least a three-year stay in a full-time nursing care facility (which is the typical length of stay). In some cases, siblings work together to fund such a strategy.

The takeaway: All in all, when you are serving an elder client, you have to keep in mind his age and the experiences of his generation. There is a big difference between the 60-year-old who hasn’t retired and someone 20 years his senior. Consider your client’s historical perspective as well as his financial health. That will help give your advice direction.