Hardly a week goes by without a study emphasizing how anxious Americans feel about their retirement or how woefully unprepared they are for their golden years. This is particularly acute for soon-to-retire baby boomers. It’s almost enough to make most Americans, of all ages, want to put their heads in the sand and forget about retirement planning altogether, so dazed they are at the daunting prospect of it.
Yet the insurance industry and advocacy groups want to prevent that. A coalition led by the Insured Retirement Institute has designated this week as National Retirement Planning Week. The purpose is to push consumers to confront the reality of retirement planning and consult an advisor sooner rather than later.
To understand what the insurance industry is doing now and what it can do in the future to get people to actively start planning for their retirement, LifeHealthPro.com spoke to Douglas Dubitsky, right, vice president, product management and development for retirement solutions, at Guardian Life Insurance Co. of America. Here’s what he had to say about why people are reluctant to start the process of planning for their golden years and how advisors can help them on the road to a comfortable retirement.
LHP: Studies show that people know they need to plan for retirement, but yet many don’t consult an advisor or do any actual planning. How can the industry get consumers to start seriously planning for their retirement?
Douglas Dubitsky: The biggest problem is people hear about the [national] retirement income gap and they are overwhelmed by the information. You often hear these numbers and they are all over the place. People hear about a $7 trillion retirement gap or a $16 trillion retirement gap. Whatever number it is, there is nothing you or I or any individual can do when presented with that $7 trillion or $16 trillion number. There is nothing you can do but crawl under your desk and be afraid. It seems so overwhelming. What we have to do as an industry, as product manufacturers and as advisors, is help our clients understand their personal retirement situation. Help them plan for their retirement, not the country’s retirement. Their retirement problem isn’t in the trillions of dollars, it’s in the several thousand dollars a month. But it’s a gap that can be understandable and approachable. When somebody hears, you have a retirement income gap of $2,300 a month and as your advisor, I’m going to help you solve for that gap, that’s a conversation people are willing to have. What we have to do is provide the tools and the framework to help people get to that number and to understand, what are my needs in retirement? What is your retirement life plan? It could include travel to see your grandchildren or your golf club membership, or tickets to a favorite sports team. Then help people look at what are their sources of income in retirement Social Security, maybe they have a pension. We need to provide advisors with the tools necessary to have these conversations with clients. And then give them the formulas to maximize those assets to provide the proper level of income in retirement. That’s a big first step.
LHP: Deloitte recently did a study on what impedes retirement planning. They found several factors, such as conflicting priorities, lack of product knowledge, mistrust of the financial services industry. What do you see as the biggest barrier? How can the industry overcome it?
Dubitsky: Great report that Deloitte did. The lack of knowledge of products and a misunderstanding so you either you don’t know the product exists or you know the products exist and you totally misunderstand what they do are two big impediments. But it’s that first impediment of how do I, as an advisor, explain to my client what they need to do. I think a lot of people look at retirement as I know I need money in retirement, but I have no idea what to do next. You have to figure out what you want. What are you looking for? What is your lifestyle? What are your resources to fund that lifestyle? So getting people to focus first on the plan, that’s the first hurdle.
Advisors sometimes hit a brick wall with their clients when it comes to matters of retirement income. When you talk about retirement income, you are talking about income distribution, and you are talking about concepts that have become very foreign to so many people. I don’t know why, but it has. What do I do to take the money that I’ve accumulated over the course of my working life and now use it to fund my retirement life, to distribute my own assets back to me?
We created this website, RetirementStyleMatters.com, that is meant to jump start that conversation; it’s an ice-breaker. It’s a tool to engage the client and the advisor in an open and honest dialogue to help the advisor understand how their client thinks about retirement. Once they have that conversation, then they can lay out what is your income gap. Tell us what your needs are in retirement? What are your asset sources? Let’s do the math and see how it adds up. That’s the first step.
People don’t understand the products. People hear the word annuity and they get all scared. And some advisors don’t like that word either. It’s a great product. These are great products that provide tremendous benefits to people in retirement guaranteed lifetime income they cannot outlive. Most people like that concept, but when you ask people if they would like to have an annuity, they look at you with a blank stare. They are not sure what that means. That’s the role we have, whether it’s working with advisors to teach them, or clients to understand, is that the insurance industry has a suite of products available that solve for the retirement income dilemma. And these products come in many forms and are customizable to the client because each client has a different need in retirement.
LHP: You mentioned the website. What methods are proving successful or should be successful in getting this message out?
Dubitsky: It’s anything that spurs a client to have an open and honest dialogue with their advisor. Advertising, absolutely. Look at the advertising during major sporting events from the financial services industry over the last year. So much of it focuses on retirement income. Not much you can do in a 30-second TV ad or radio ad, but it keeps putting those words out there and is meant to get people to say, This is something I need to think about. Now what? One advantage advisors have today is that their clients are hearing these terms a lot. Clients are hearing the concept of retirement income planning. But our job is, let’s move from concept to plan, let’s move from big picture to personalized action plan. We can create the attention, we can create the sense of urgency, but if you don’t create solutions to go beyond that, then all you’ve done is increase the fear factor. The industry as a whole is doing a tremendous job of creating that sense of “I know I need to do something.” Where we are really focused on now is that next step, helping people understand how to plan their retirement income in a manner that provides both guaranteed lifetime income they cannot outlive to cover their basic expenses in retirement and discretionary income to cover their discretionary expenses in retirement. Once advisors take their clients through this, it makes sense to those clients.
Study the income gap and they lay it out in a manner that is understandable. Then start talking about the products that are out there, income annuities, immediate or deferred, variable annuities with living benefits that can provide guaranteed income. Lay those out, and say, here’s what we’re going to do. We are going to maximize your Social Security. If you have a pension, we are going to use a pension to cover these items. We are going to meet the shortfall with an income annuity. We are going to provide some discretionary income with a living benefit rider and then we are going to take your other assets and maybe we’re going to put them in a mutual fund or a bond portfolio. You don’t need to nervous about the markets, interest rates, what’s happening in Cyprus, etc., Mr. Client, because we’ve covered your basic expenses with guaranteed income.
Advisors need to educate clients, and clients buy into this. Studies show that when you provide guaranteed income in a retirement portfolio it optimizes that portfolio. Studies show that people are happier when they have guaranteed income in retirement. It removes stress from retirement. Advisors tend to get additional assets from clients when they provide guaranteed income solutions in retirement. They become trusted advisors because they provided the right information to clients.
LHP: Should the industry start targeting younger consumers? Gen X and Gen Y?
Dubitsky: Yes. There were many generations in the past where they didn’t have to think about retirement because they all had pensions. I know that’s not the recent or current generation. Taking a job included a strong pension, so you were passively thinking about your retirement during your working years. Since most people don’t have a pension anymore, we need to shift that conversation toward an active thought process even at the younger generations.
You never hear somebody say, wow, I paid my homeowner insurance for 20 years and my house has never burned down. People are pretty happy about that. Why don’t we have that same attitude about our retirement? Here’s the big difference. The money we are putting toward our retirement will come back to us or our beneficiaries.
Clearly, the earlier you start, the better off you’ll be. And as an industry what we have to help people understand is that it’s not an either/or approach. That are ways to create holistic plans throughout your life, depending upon what stage you are at, that can provide for where you are at today, provide you the ability to accumulate assets along the way and lock in guaranteed income you cannot outlive when you do retire.
LHP: You work in the retirement income business. So have you done your retirement plan?
Dubitsky: Have I done this personally? Yes, I have. It’s not a one-time thing. It’s an ongoing process. I don’t think anybody is actually done. I’m not near retirement age. I’ll be working for many years. At my stage, a lot of it is educating myself basic things like maximizing your Social Security, or RMDs. A lot of people don’t know what they are until their accountant tells them, you’re 70-and-a-half and you have to start taking money from your retirement funds.
It’s not that complicated. Educate your clients. Have that conversation with your clients. Do an income gap analysis with your clients. Understand their sources of income. Ask those questions. Talk to them about the concept of basic expenses/needs versus discretionary needs. Explain to them that nobody wants to live in retirement on food, shelter and clothing. We are going to include other items in your basic needs. Everybody’s concept of basic needs is different.