Little surprise - boomers got more, but saved less. A recent survey conducted by NAVA, the Association for Insured Retirement Solutions, shows baby boomers have higher expectations for retirement than their parents. But when it comes to financial stability, boomers pale in comparison. The frugality and sensibility of the Greatest Generation highlights serious financial irresponsibility on the part of boomers. How are they catching up? And what implications does this have for advisors?
NAVA interviewed people ages 45 to 65 about their financial habits and attitudes and asked these respondents to compare their practices and viewpoints to those of their parents. To point out contrasts, NAVA also interviewed people ages 70 to 80. In a surprising turn, the older generation's responses matched boomer generation's predictions on how they would respond.
One of the most striking findings is how much worse baby boomers' financial habits are compared to their parents. Although boomers earn more than their parents, are more educated, and have access to more technology, they have failed to save -- which directly contradicts what their parents' generation wanted most for their children.
And while 81 percent of the parents' generation said they did an excellent job of staying out of debt, only 57 percent of the boomer generation could say the same. Only 24 percent of boomers say they are keeping a current overall financial plan, compared to 34 percent in their parents' generation.
It's clear boomers have inferior financial habits compared to their parents, but only 37 percent said they would be satisfied with how their parents live during retirement. With higher health care costs and longer lives, along with their higher lifestyle expectations, boomers can expect a long bumpy road during retirement compared to what their parents have experienced. And, due to their excessive spending, they are more likely than their parents to enter retirement with debt.
These are obstacles, but boomers have an openness to investment risk and new ideas that their parents did not have. Two-thirds of the boomers surveyed told NAVA that they are more open to new types of financial vehicles than their parents. Also, more than half have a different investment risk tolerance than their parents, mainly a higher level of comfort with investment risk.
This openness to new ideas is more than receptivity. I think boomers want their advisors to be proactive in alerting them to innovative products and tools. Many boomers will have financial stresses in retirement and they will want the maximum help possible. By presenting new ideas, you demonstrate that you are doing everything possible to help them meet their needs.
With this in mind, there are four products worth mentioning:
The Pension Protection Act of 2006 provides tax advantages to long term care insurance attached to annuities. Some products are now being developed that provide additional protection to individuals at a very low cost.
New life annuities have come into the market with premium refund features and flexibility that address consumer concerns.
Mutual fund companies have developed much more effective asset allocation models for producing income during retirement than the simple "solution" of increasing the fixed portion of the portfolio (and thus tending to push down return just as retirees really face the corrosive impact of inflation).
Finally, actively managed Exchange Traded Funds (ETFs) are now being introduced into the market and promise to reduce the drag of cost and taxation on these investments. They give people a higher after-tax return along with a chance to out-perform the market.
As you meet with your clients, I suggest that you continually tell them about new innovations in the market that you are monitoring and, at times, ask your clients to consider them. Many of your clients will face increasing financial pressure as they age. But, as you continue to identify new ways to better meet their needs, you will increasingly be seen as a valuable resource.
Mathew Greenwald is president of Washington, D.C.-based Mathew Greenwald and Associates.
