An estimated 10,000 workers enter retirement every day, a number that will rise as the tail end of the baby boomer generation reaches the age of 65 over the next 10 years. The implications for financial service providers are immense, as boomers have been a demographic sweet spot that has generated record demand for investment services and advice — through good times and bad — over several decades.
As they wrap up the most economically productive phase of their lives, late boomers are shifting from a lifetime of asset accumulation to a process of decumulation. Therefore, it’s a good time to determine if current strategies — which have brought financial advisors and wealth managers the success they enjoy today — will continue to be relevant in the months and years to come.
Uncertain State of Boomer Retirement
To be sure, boomers — especially those entering retirement now and in the near future — are in need of solid counseling. In the recent 2019 Retirement Plan Participation Satisfaction Study from J.D. Power, we surveyed boomers who participate in defined contribution plans and found some concerning trends.
- Fewer than 1 in 4 respondents in this demographic segment reported being “very confident” in their retirement readiness.
- Just 1 in 5 indicated they were “very confident” in their ability to leave money for heirs.
- Only 1 in 8 felt they were “very confident” in their understanding of what it will take to effectively address health care and medical issues over the course of their retirement.
Born between 1946 and 1964, boomers currently straddle every phase of the retirement experience. More importantly, they are the first generation in modern times facing the need to take responsibility for planning and managing their own retirement because fewer people have access to pensions or other defined benefit plans. It is part of why this generation has counted so heavily on the support of financial advisors and wealth managers.
While there are many behavioral characteristics that tend to define the baby boomers as a whole, they cannot be painted with a single brush. Our research on full-serviced, professionally advised investors found three key ways in which members of this group tend to change as they pass from employment to retirement.
- Evolving attitudes toward risk — As investors’ employment-based income either declines or abruptly terminates, they tend to reassess their attitude toward investment risk. About two-thirds (64%) of retired boomers surveyed describe themselves as either “moderately conservative,” or “conservative” investors. That compares with only about half (52%) of fully employed boomers who describe themselves in the same way. Further, 16% of retired boomers report that their risk tolerance has declined just over the past 12 months.
- Changing financial objectives — A second area of behavioral change revolves around the stated financial goals of current retirees and boomers that will soon enter retirement. Planning for retirement tends to be the dominant goal during working years, but once that milestone is reached other priorities begin to surface: Interest increases in strategies aligned with capital preservation, planning for major retirement-related purchases, travel, taxes and estate planning.
- Simplification and consolidation — Our research also found a generation-wide interest in simplifying their financial lives as they enter retirement. This is expressed in decisions to consolidate the number of relationships boomers have with wealth management firms and advisors.
Our data showed that only 37% of boomers still employed full time did not have a secondary investment relationship. That percentage jumps to 53% among retired boomers.