Most financial advisors look to seniors as a core part of their client base. That’s why it’s essential to understand how baby boomers are going to transform retirement, just as those in that demographic have redefined every other stage of their lives. Let’s look at some new research that quantifies boomers’ intentions in retirement.

Michael Adams, founding president of Toronto-based Environics Research Group, is a leader in social values research and author of Stayin’ Alive, a recent book on boomers in retirement. In that book, Adams compares the attitudes toward retirement held by today’s early boomers (aged 53 to 62) with those of the previous generation of retirees, who were in their 60s in 1992. Boomers are dramatically more likely to plan to engage in active outdoor pursuits, explore exotic places and take classes to develop their interests than were their elders.

At the same time, boomers are much more concerned about having enough money to live on. Six in 10 intend to work in retirement, almost twice the proportion of retirees in 1992.

This trend will lead to stresses as boomers’ “I want it all, and I want it now” mindset clashes with their ability to pay for the things they want. The trend also will challenge advisors in developing retirement plans to fund some of those activities.



> Not Their Parents’ Retirees

A recent survey of affluent American boomers aged 46 to 64 by New York-based Merrill Lynch & Co. Inc. provides hard data on the extent to which boomers are planning to operate entirely differently in retirement than have previous retirees.

Here are some of the survey findings among these boomers, all having investments of at least $250,000. First, they were asked to compare their expectations to their parents’ retirement. A significant majority say their retirement will look different from their parents,’ plan a more active lifestyle and expect a higher standard of living.

The Merrill Lynch study digs deeper into the kinds of activities boomers anticipate doing in retirement, confirming some of the data from Adams’ research:

> 70% plan to keep working;

> 32% expect to pursue additional professional success;

> 26% anticipate taking courses and continuing their education;

> 20% expect to start or further their own businesses.

Another recent study, sponsored by U.S. Trust Corp. , reinforces the dramatic difference in boomers’ retirement priorities compared with those of previous generations. Investors having at least $3 million were asked what they wanted to achieve with their money. “Financial freedom” and “financial security” ranked at the top — no surprise there. Then came “travel” and “improving relationships with family and friends.” Past generations have given priority to “leaving an inheritance”; wealthy boomers ranked that concept at No. 5, just ahead of “having fun.”



> Seven Implications For Retirement Planning

A number of implications from this research could put pressure on existing retirement plans. Here are seven steps you can take to incorporate these findings into your financial advisory practice:

1. Re-Examine Your Assumptions On Retirement Spending. The conventional thinking on spending in retirement was that there would be a burst of spending in the years immediately following retirement on activities such as travel, after which health issues and the fatigue associated with age would lead to less active lives and lower spending.

It’s clear that most boomers will be dragged into their rocking chairs kicking and screaming. It’s likely that the appetite for spending in retirement won’t abate as quickly as in the past and will continue longer than currently anticipated, putting stress on retirement plans that don’t account for this trend.

2. Dig Deep Into Each Client’s Retirement Thinking. Just as no two clients are alike before retirement, no two will be alike in retirement. Clients with similar backgrounds and in similar financial situations may have entirely different plans for retirement. If you haven’t had a detailed conversation with your clients about exactly what they visualize in retirement, now is the time to have that chat.

And be particularly alert to differences in plans and expectations between spouses.@page_break@3. Tap Into Interest In Active Travel. Given the strong priority to travel in retirement, consider making yourself a resource for retired clients looking for new and exciting adventures.

For example, you could explore a relationship with a travel agent who specializes in travel for active seniors. Note that the kind of travel most retired boomers have in mind is very different from the bus tours of Europe that their parents went on.

Some advisors have seen great response to quarterly presentations on unusual travel destinations and, in some cases, have established referral relationships with travel agents specializing in high-end travel. Be sure to be informed about out-of-country health insurance options for seniors.

4. Help Retirees See The Impact Of Charitable Giving. The U.S. Trust research found that many wealthy investors are interested in seeing the impact of their giving now rather than leaving a legacy when they pass away. In some cases, that’s influenced by the desire for acknowledgement and recognition for their charitable contributions.

And yet four in 10 affluent investors haven’t discussed or sought advice about legacy goals or their philanthropic strategies. If you’re dealing with affluent clients, engage them in a conversation about where charitable giving lies in their priorities.

5. Be Cautious About Projected Income From Part-Time Work. Some successful boomers visualize life in retirement as a succession of well-paid board jobs and consulting assignments, and perhaps see themselves serving as executive-
in-residence at a university. While that might describe life in retirement for a fortunate few, the surge in retired boomers competing for part-time work will limit these kinds of opportunities. An administrator at an MBA program in Toronto told me that 10 years ago, he got one query a quarter from retired or semi-retired executives looking for part-time teaching positions; five years ago, it was one query a month; today, it’s one a week.

So, you should be cautious about retirement plans that rely on significant income from part-time work, especially given the frequency with which seniors run into health issues that constrain their ability to work.

Be especially cautious in cases in which clients plan to operate their own businesses. Unless a client is continuing a business that they’ve been running before they retired, businesses in retirement should be viewed as hobbies that will cost money, not as even a modest source of income.

6. Factor In The Impact Of Health Costs. Adding to the possible strain on retirement budgets are new medical advances that are extending lifespans. Over the past 100 years, life expectancy at birth has increased by a remarkable 30 years, from under age 50 in 1900 to 78 for a newborn child today. If you have a reasonably healthy couple as clients, odds are that one or both will live well into their 90s or beyond.

The downside is that this longevity comes at a cost; with 80-year-olds lining up for hip replacements, it’s likely that we’ll see more boomer retirees writing cheques to get timely care. And while they could wait, we all know that boomers have never been known for their patience.

Meanwhile, although science is extending seniors’ physical vitality, progress on mental capacity is slower to come. The alarming incidence of dementia among those over age 70 will put pressure on both families’ ability to cope and the ability to fund the quality of care that most retirees and their families want.

Given the magnitude of uncertainty, it’s impossible to factor all of these possibilities into a retirement plan with any accuracy. For clients who can afford long-term care insurance, the best route to reducing the risk of health issues of this kind may be to invest in LTC insurance.

7. Encourage Your Clients To Consider Extending Their Full-Time Work. In some cases, a pre-retiree’s financial situation is such that money won’t be a concern, regardless of how long he or she lives. But given extended lifespans and the desire to pursue active and potentially costly pursuits, those clients are relatively rare.

Last year, I spoke with Alicia Munnell, director of the Center for Retirement Research at Boston College. I asked her what advice she would offer baby boomers contemplating retirement. Her answer was simple: “Most should work as long as they possibly can.” IE



Dan Richards is CEO of Clientinsights (www.clientinsights.ca) in Toronto. To read other columns by this sales expert, visit
www.investmentexecutive.com.