I don’t mean physically pliable, or open to new ideas (although I’m sure those attributes would lead to a more pleasant retirement). I mean that there needs to be a degree of flexibility in their financial plans.
Planning for retirement isn’t just about hitting the “magic number,” whatever that number may be in their minds. It’s not just a matter of building up a nest egg during accumulation years, and then drawing it down in the most tax-advantageous way during decumulation years.
It’s about setting up streams of income to trickle in at certain times and even for certain reasons. Sandra Timmermann, director of the MetLife Mature Market Institute, said the key to retirement planning today is having the right combination of safety and guaranteed income. The institute published a report this week called “Best-Case Strategies For A Flexible Retirement: The MetLife Study of Thinking About Retirement in Uncertain Times.” It concluded that Americans are not putting enough emphasis on the potential for the unexpected in retirement.
The study segmented people into 10 different profiles, depending on how prepared they are to handle things that could wreak havoc with retirement plans, such as higher-than-expected healthcare costs, long-term care costs or vanishing pensions. The most prepared retirees were dubbed “preemptive planners.” The least prepared were the “snoozers.”
To be sure, the idea of adding income streams to a retirement nest egg has been gaining traction. In an article on retirement in our upcoming issue, we discuss the idea of buying annuities for very specific purposes in retirement—that is, an annuity for health care, or an annuity for a grandchild’s education. Joe Coughlin, director of the MIT AgeLab, says that such an annuity ideally would allow for additional income to be purchased for future needs. This market is in its early stages, he says, but it should grow as our aging society continues to need more predictable streams of income. Allowing clients to create their own “personal pension account” would provide the degree of flexibility that many clients will need, he says.
The MetLife survey, which was done in conjunction with the Scripps Gerontology Center and consisted of 1,007 surveys and 50 in-depth interviews (about an hour) across the country, shows that 35% of respondents had “major unexpected expenses” in the past two years. The most common expense was medical related, and the average duration was 10 months. The next most common was financial support of friends or family, with an average duration of 11 months.
There is one bit of good news for advisors. Less than half (49%) said they used a financial planner for retirement decisions. And if you read further, the role of their financial planner varied widely to include “teachers,” listeners,” “counselors” and even “math geeks.” Indeed, most of the respondents (60%) said they pay for their unexpected expenses by simply drawing cash from a “rainy day fund” or retirement fund.
So the potential clients are out there, and in need of a professional advisor’s services. But these are new client demands, and will require new skills and insights to fulfill.