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Helping ‘transition boomers’ transition to retirement

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Retirement income is becoming an increasingly important topic within the financial services community as baby boomers comprehend the shift from accumulation of assets to distribution that happens once retirement starts. This is especially true for “transition boomers,” those 55 to 65 that are closing in on retirement or those just beginning a new life without the familiarity of a regular paycheck from their employer.

Often the topic of retirement income is not discussed with clients until retirement is officially underway. Many Americans look to their financial professionals to help them build a large nest egg for retirement, rather than secure a stream of income. Delaying the retirement income conversation until retirement begins can potentially limit the opportunity to build a level of certainty into their retirement portfolio and help reduce the risk of volatility brought about by unpredictable market performance.

So the key question is, are you doing enough to educate transition boomer clients about strategies that can help them achieve their financial goals?

According to the 2013 Transition Boomers and Retirement Income survey – conducted with more than 1,400 respondents between the ages of 55 and 65 – from Allianz Life Insurance Company of North America (Allianz Life), it’s clear that transition boomers need more help. But it’s also apparent that those boomers working with a financial professional have a much better understanding of the need for retirement income and strategies they can use to ensure they don’t outlive their money.

Help from a financial professional makes an impact

When asked about their most important remaining financial objective to address before retirement starts, the top selection among transition boomers was to “increase their savings rate” (29 percent). However, the results were much different based on whether or not the respondent was currently working with a financial professional. More than a third (34 percent) of transition boomers that did not work with a financial professional said they still need to save more money for retirement while only 14 percent of those that work with one indicated building their savings was still a top priority.

This extends to their response about the financial habits they believed would have the greatest negative effect on their lifestyle in retirement. Overall, more than half (57 percent) of transition boomer respondents said that either “not saving any money” or “saving some money, but not as much as I could” where their main financial bad habits. This response dropped to only 37 percent among those working with a financial professional, but increased to 63 percent for those not working with a financial professional.

Conversely, transition boomers that work with a financial professional have a much better understanding about the importance of having a withdrawal strategy that ensures they won’t outlive their income. Twice as many of this group (22 percent) noted their interest in developing a withdrawal strategy before the start of retirement versus only 11 percent of transition boomers that are going it alone without guidance from a financial professional.

Potential solution

As financial professionals know, annuities can be a potential solution for clients who understand that the necessities in retirement – food, clothing, medical care and shelter – should be addressed through a financial solution they can rely on. As such, it’s no surprise that transition boomers working with financial professionals have both a better understanding of annuity products and significantly higher annuity ownership.

Although knowledge about annuities is still low overall, with 75 percent of transition boomer respondents reporting a general lack of understanding about the products, the guidance of a financial professional can have a significant effect on confidence in understanding the annuity basics. Thirty-five percent of transition boomers working with a financial professional felt they could explain the basics about annuities while only 20 percent of those without help felt the same way.

As a result, of the 25 percent of transition boomers who reported owning an annuity product, nearly half of that group (47 percent) came from those who work with a financial professional with only 18 percent coming from those without the benefit of professional assistance.

Take action now

So what does this mean for you and your practice?

If you’re currently working with transition boomer clients who don’t have guarantees in their retirement portfolio, now is the time to act by discussing options available via deferred annuities. By having a guaranteed income stream provided through a deferred annuity in the years prior to retirement, transition boomers protect a portion of their assets from market declines and have an income to help cover basic needs. Once basic needs are met, they can focus on funding the “nice to have” aspects of retirement, such as travel and recreation. Also, by adding guarantees to a portion of their portfolio, the remainder can be used to help build their savings, which many noted as a major concern. Keep in mind, guarantees are backed by the financial strength and claims paying ability of the issuing company.

There can be positive financial and emotional aspects of making an annuity purchase during the transition period rather than waiting until the start of retirement. Some annuities even offer the potential for increasing income in retirement (which may come in the form of optional, additional cost riders) that can help address additional concerns such as rising costs due to inflation.

With your guidance, transition boomers are positioned to have a much better chance of understanding their retirement income choices and why addressing the issue prior to the start of retirement is so crucial to their overall retirement strategy. By starting the conversation early, you can demonstrate your value and help these boomers gain a better understanding about guaranteed options for their retirement portfolio and how they can help ensure a portion of their money lasts as long as they do.

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