In the first of a two-part series, Dan Richards looks at two key traits of the baby boomer generation that are critical considerations in planning for boomers’ retirement. In the December issue, Part 2 looks at three more key characteristics.



As the baby boomer genera-tion has moved along the age spectrum, its members have cut a swath through society, transforming every institution they have touched — from universities to automakers, from the real estate market to the airline and travel industries.

Now that the first wave of boomers is entering retirement — with many more to follow — they are redefining retirement in a similar fashion.

As a financial advisor, dealing with baby boomers in retirement will be an entirely different proposition from interacting with their parents at the same stage. Those advisors who fail to make the transition will risk being big losers — and those who succeed will have the opportunity to be big winners.

While baby boomers are not homogeneous — there are huge differences within the group — there are five key traits that mark behaviour among the typical middle- or high-income boomers who are the clients with whom most advisors work.

These five traits are:

> the view that they can have it all;

> skepticism about authority and institutions;

> reluctance to give up control;

> the desire to keep options open; and,

> the quest for value.

In this column, I’ll be looking at the first two of these qualities.

The first key boomer trait to deal with is the “I want it all, and I want it now” mindset that has marked Canadian baby boomers all their lives, one that many will take into retirement with them.

Perhaps better than any characteristic, the “have it all” ethos defines boomers; after all, not for nothing has this been called the “me generation.”

When, for example, is the last time that you heard a discussion of “deferred gratification” — the notion that you sacrifice today so you can enjoy things tomorrow?

This concept marked the behaviour of predecessor generations — its disappearance among boomers is one explanation for plummeting savings rates among Canadians. (It’s interesting to note that first-generation Canadians seem to have more traditional values when it comes to saving and making sacrifices for the future.)

This “me first” attitude shows up in all kinds of ways. Recently, for example, the media ran stories on the explosion of joint replacements among Canadians in their 40s and early 50s — the kind of surgery that used to be limited to people in their 60s and 70s.

Part of this is driven by the wear and tear from the obesity epidemic pervading our society. But much flows from boomers’ sense of entitlement and determination to get what they want — the best possible treatment, regardless of cost — when they want it — right now. Arguably, the health-care system has seen only a hint of the kinds of demands that will be placed on it as this attitude permeates boomers in retirement.

Bringing boomer behaviour closer to home, I recently conducted some research among affluent retirees aged 50 to 70 on behalf of an insurance company that was looking at new solutions for this group. All retirees had portfolios in excess of $250,000 (with some of those portfolios in the multi-millions); almost all worked with financial advisors.

As part of this research, I asked retirees to compare their cost of living after retirement with what it had been before. Traditional thinking uses 70% as the proportion of pre-retirement income that would be needed after retirement.

Recognizing that in this study I was dealing with retirees with above-average investments — a subset of the total retiree universe — very few retirees described their costs as having gone down significantly once they retired. For most, expenses had gone down a bit or stayed the same, but in a significant number of cases, they actually had gone up.

The reason is simple: these retirees now have the time to travel, eat out and enjoy life in a way that they hadn’t been able to before retirement. Yes, they could get by with less, but they have no interest in cutting back on the lifestyle to which they feel entitled.

In terms of how much these retirees spend, one couple is typical. They own their house and cottage and take out $3,000 to $3,500 per month for ongoing living expenses. In addition, they withdraw lump sums a couple of times a year for trips — and plan to take out another large sum next year to buy a new car.

@page_break@The implications here are crystal clear: advisors need to have frank conversations with clients in their 40s and 50s about the kind of life they expect to lead after they retire, so that your advice reflects the kind of lifestyle your clients hope to enjoy in retirement.

Advisors also need to provide a reality check to help those boomers unprepared for retirement understand what their options really are — whether it be working longer, saving more or changing their retirement plans. Many boomers have the largest portion of their wealth tied up in their home, yet they resist downsizing to free up cash that could be invested for future growth.

The essence of a good advisor’s role is to help clients understand what their options are and the trade-offs available to them — this is where advisors can add real value. Most boomers are not irrational; but unless they are presented with facts to the contrary, they will cling to the fantasy that they can continue to have it all in retirement.

Note that the reliance of many boomers on augmenting post-
retirement income with part-time work depends on lucrative work being available. When the typical boomer talks about working part-time, he or she thinks in terms of teaching or consulting at $150 or $200 an hour, not being a greeter at Wal-Mart, answering phones at a call centre or standing behind the counter at Tim Hortons.

Here is one example of the competition for part-time work: in a recent conversation with someone who runs the business program at a community college in Toronto, he mentioned to me that the number of inquiries from retired executives about teaching has increased tenfold in the past few years. Today, he can accommodate only a fraction of these requests — considerably less than 1%.

Inevitably, a significant number of boomers are going to be disappointed about the kind of opportunities for part-time work available to them after retirement. This is something that early-stage boomers in retirement have already encountered — even before the wave of competition from the mass of retiring boomers kicks in!

One of the biggest challenges for advisors is to introduce experiences from other retirees who have failed to find the part-time income they were counting on and gently ask the tough question: “What if that consulting work is not available?”

Dealing with boomers’ “I want it all” mindset doesn’t stop there. These clients will demand that you tailor how you deal with them to their preferences — when it comes to boomers, one size definitely does not fit all.

Using e-mail communication as an example, some boomers love e-mail for its efficiency; others hate it for its lack of personal connection and its intrusiveness. As “push” e-mail devices such as the BlackBerry follow the path of personal computers and cellphones and migrate from being used primarily for business to becoming the norm for personal use, communicating with clients electronically will become more and more important.

Going forward, you had better know how your key clients feel about technology, and figure out how you can communicate with them on their terms, not yours. And this applies to more than e-mail.

The second common trait among baby boomers is an unwillingness to accept authority uncritically, combined with skepticism about conventional wisdom.

The influence of the baby boomer generation has led to an erosion in respect for virtually every institution, including churches, government, the media and big business, and to a dramatic decline in the respect for once-cherished professions such as lawyers, accountants, doctors and bankers.

Anyone who works with baby boomers in retirement had better be prepared to answer their questions honestly, openly and clearly, and to provide solid evidence for their advice. Remember that “because I say so” isn’t going to cut it with tomorrow’s retirees.

While this tendency to question your advice is already true of many clients in their 40s and 50s, the freeing up of time that comes with retirement will, in many cases, lead to a torrent of queries compared with what you are used to. And that doesn’t just apply to the investments that boomers hold with you; as more of them become involved in the financial affairs of aging parents, be prepared for much tougher scrutiny of how you’re handling their parents’ investments.

Some advisors — already pressed for time and reluctant to bring on additional staff — will be challenged to find ways to deal with this greater demand for information. One solution may be to utilize tools such as “frequently asked questions” sections on personal advisor Web sites, offering easy to access information to more tech-savvy retirees. Another may be to ramp up educational forums and workshops so you can reach clients in a time-efficient fashion.

In the December issue of Investment Executive, we’ll look at the final three boomer traits. IE



Dan Richards is president of Strategic Imperatives Ltd. He can be reached at richards@getkeepclients.com. For other columns in this series, go to www.investmentexecutive.com.