But 2011 research from the MIT AgeLab finds that baby boomers want more. They want to know what life may have in store for them in retirement and how they may be able to prepare financially for those eventualities. Women, in particular, want solutions to specific life issues.
"Financial security alone does not satisfy the boomers," Dr. Joe Coughlin, founding director of the MIT AgeLab, says. "They are seeking solutions to later life. Financial planners will be increasingly asked to help aging boomers navigate longevity, not just financial security."
Planners can expect questions about health, eldercare, second careers, implications about starting a business and long-term care, Coughlin says. Even housing, transportation and home modifications are becoming more common concerns in comprehensive longevity planning.
It sounds exhausting—and complicated. But while surveys continue to show that procrastination is alive and well when it comes to retirement planning, there is no doubt that boomers are actively seeking solutions to real life issues associated with aging.
For instance, financial planners are hearing more questions and requests for information about specific health care-related issues. Clients are seeking information about specific chronic diseases and the ramifications—to the individual, the family and the finances.
Boomers, famous for being the most highly educated generation, are now getting schooled by an unexpected life experience. They are being pulled between raising and educating their own children, and caring for older parents or other relatives. That competition is more than a drain on time; it can sap significant financial resources as well.
The good news is that this experience is far more instructive than any financial planning software or financial product brochure could ever hope to be. As boomers observe their parents' decline in later years and struggle to care for them, they are getting a primer in the financial calculus of aging. Increasingly, boomers are digging into their own pockets to help fund nursing home care and other services for parents and other relatives. The financial impact directly affects many boomers' own retirement readiness.
It also impacts their mindset and their seriousness of purpose when planning. The combination of longer life and its related health care costs, eldercare and plans for long-term care are prompting many boomers to ask financial advisors for help in developing life solutions, rather than retirement solutions, Coughlin points out. Asking the right questions can make all the difference.
The 2010 Hartford Investments & Retirement Study found that people who worked with an advisor or financial planner were more likely to say they were on target to retire as planned compared to non-planners, 53% versus 39%, respectively. Those who planned were more than twice as confident about their financial knowledge and capabilities compared to those who did not.
Advisors can help enhance their clients' confidence quotient—not to mention their readiness for older age—by helping them identify different issues they are likely to encounter and then associating potential costs with them. But advisors can also go a step further by helping clients identify and even segregate sources of income to fund the challenges of aging. This concept of "purposeful income" is powerful in that it applies planning rigor and discipline to a problem or problems, giving clients a sense of accomplishment, control and, ultimately, a feeling of security.
One of the main issues in providing "purposeful income" is being able to determine how much income can be reliably anticipated in future years. If a client develops a detailed plan, but the income to fund it never materializes, it will cause a great loss of confidence. This is where employing annuities to a segment of your client's portfolio can help. The foundation of a financial plan can be built around the intentional use of guaranteed annuity payments to cover the most critical needs in retirement. Of course, income guarantees are based on the claims-paying ability of the issuing company.
If a client is concerned about the loss of income should he or she need to take a leave from work to care for a parent, the annuity can accumulate tax deferred until that need arises. When the income is needed, the annuity could be tapped (without tax penalty if the client is older than age 591/2) to supplement other investment income to make up for some or all of the lost wages. (Taxable distributions and certain deemed distributions are subject to ordinary income tax and, if taken prior to age 591/2, may also be subject to a 10% federal income tax penalty. Early surrender charges may also apply.)
