Drew Denning, vice president of Principal Financial Group, said his research shows that the average 65-year-old has only saved $165,000 for their retirement — and, depending on the state of their defined benefit plans, they might not get much else. That adds up to about $6,000 to $7,000 per year for the remainder of their lives — quite a shock, he said, for those used to living on a six-figure income.
Part of the problem, Denning notes, is that when boomers first began saving for retirement, they didn’t consider many of the luxuries they would one day come to rely upon.
“Twenty years ago, retirees didn’t have cable television, cell phones, a second home, a third car in the garage, so they didn’t save for them,” he said. “Now, getting rid of those extras are the kind of changes that are going to be necessary for the vast majority of boomers to make it through retirement.”
For some people, though, the idea of giving up the retirement lifestyle they have fantasized about is disappointing. Those people have come up with an alternative plan to ease their retirement woes — keep working.
“There is no question that all of the research data shows that people are pushing back their expected date of retirement,” Salsbury said. “Most people are open to or expecting to work during retirement. Unfortunately, what they are ignoring is that about 40 percent of the people who retire every year don’t do so by choice.
They are either forced to by health or by changes in the workplace. So I think there are still some incorrect expectations.”
Boomers might need to adjust their expectations even further, then, looking for work outside their field and even considering part-time jobs that pay much less than what they earned before they reached the age of retirement.
Repairing the damage
But what if you have a client who didn’t save enough, wants to continue their lifestyle into retirement, and doesn’t want to work? Are they deluding themselves? Or is it possible for a boomer who is struggling financially to salvage their finances?
Dr. Bill Roiter, a clinical psychologist and the author of “Beyond Work: How Accomplished People Retire Successfully,” said boomers are much more hesitant to become involved with financial advisors now than they were before the financial crisis.
“The new uncertainty and insecurity has reduced boomers’ willingness to make financial decisions,” Roiter said. “They are looking for good financial products, but they’re most concerned about trusting those that provide financial advice.” Once a boomer agrees to work with an agent or advisor, what products will they want, and, more importantly, which products can help dig them out of their crisis
For anyone who yet hasn’t retired, Denning believes there is hope, as long as agents can help these consumers make the right choices. Agents should look at maximizing savings opportunities in the remaining years before retirement, as well as conducting a review of the client’s spending habits to see where cuts can be made. Then, he said, you need to find a reasonable retirement date given every other factor.
Denning is also a strong advocate of income annuities and retiree health insurance.
“Income annuities are the only product out there that can provide the maximum level of retirement income,” he said. “With retiree health insurance, it used to be about 55 percent of companies that offered it, and now it’s just barely north of 25 percent. So people who are thinking about retiring before they’re eligible for Medicare need to think about whether they can afford health insurance before they hit that magical [age of] 65.”
No matter what path you recommend for your boomer clients, all the experts agree that the climate is changing.
“Ten or 15 years ago, we talked about asset allocation,” Reed said. “Now, I think the conversation is going to change from asset allocation to product allocation, and that causes a great anxiety for some because they aren’t sure what products they should be investing in. As advisors, it’s our job to help them understand the challenges ahead and help them understand what their strengths are. We have to give them confidence that they are going to be able to make it.”
Reed also noted that some of the changes in the retirement conversation came about as advisors became more comfortable asking the tough questions, such as, “Are you going to be able to live on less?” and “Do you understand that you might have to work in retirement?”
Denning and Roiter both stressed the importance of all advisors — whether insurance agents or financial planners — encouraging their boomer clients to save money for retirement. According to Roiter, the traditional wisdom states that retirees need to seek a replacement income of 65 percent of their current earnings. Today, however, consumers should realistically look to replace 80 percent of their income — yet only one-third of boomers were even hitting the 65 percent mark to begin with.
Denning agrees that most boomers aren’t saving enough.
