A baby boomer himself, Jon Ten Haagen, CFP, RPC, acknowledges that the retirement picture for many of the 77.3 million members of his generation isn’t pretty.
“Too many baby boomers don’t pay attention to how much they have saved for retirement,” observes Haagen, founder of Ten Haagen Financial Group in Huntington, N.Y. Perhaps they’re not paying attention for fear of what they’ll find if they do.
In its annual retirement confidence survey for 2013, the Employee Benefit Research Institute found that among workers age 55 and older, 43 percent have saved less than $25,000, and 36 percent have saved less than $10,000.
Yet the importance of an adequate retirement nest egg isn’t completely lost on boomers, according to Jafor Iqbal, managing director of the LIMRA LOMA Secure Retirement Institute.
Indeed, recent research by the SRI found that the three highest retirement-related priorities for boomers are having enough money saved to:
(1) retain their financial independence during retirement;
(2) last through retirement;
and (3) cover medical expenses during retirement.
As an advisor who serves boomer clients, your job is first to get them to pay attention to their retirement finances, then to find the appropriate tools to address their priorities. Doing so demands that you have a well-equipped toolbox. So what to put in it?
For income to last a lifetime…
Lifetime income guarantees such as the popular guaranteed minimum withdrawal benefit can be purchased as an add-on to both variable annuities and fixed index annuities.
Boomer clients seeking more aggressive growth (such as to make up a significant savings shortfall) might opt to add one to a variable annuity, while others might prefer to trade some upside potential for the principal protection afforded by an FIA. Certain riders provide flexibility in when to turn on the income stream, whether it’s five, 10 or more years into retirement.
Since only about 30 percent of boomers have a pension plan from which to draw retirement income, “they need to create something pension-like” for themselves, says Iqbal. For that reason, “annuities that provide lifetime income probably are a very good option for many pre-retirees.”
Immediate annuities and their increasingly popular cousin, deferred income annuities, are also viable options for creating a retirement income stream, according to Iqbal. In many respects, the DIA works like a single-premium immediate annuity, where the contract holder invests a lump sum by rolling over qualified funds or taking money from a low-earning CD. But instead of payments beginning immediately, they’re deferred for five, 10 or more years.
In-plan annuities are another way to convert qualified funds [such as those residing in a 401(k)] into a pension-like guaranteed income stream, although today, this emerging product is offered by a limited number of retirement plan providers.
Those that are available often package downside principal protection with some ability to tap market gains, plus a guaranteed income stream.