How low will we go? Where will it end? What lasting effect will it have on the boomer retirement portfolio? A best guess is about the best anyone can do. Still, advisors are being asked to provide more certainty in the uncertain financial climate. Boomers are grappling, now more than ever, with the issue of generating some form of guaranteed income from their retirement savings, and they're afraid they are running out of money.
Boomer advisors must be experts in distribution planning. The skill set now requires product knowledge, tax planning, wealth transfer expertise, as well as that of a coach and therapist. Retirees are bombarded with financial noise from every angle, so it is essential to be able to sift through the information blizzard.
Solutions that include fixed annuities, variable annuities with guaranteed income riders, income replacement mutual funds or even laddered bond portfolios will be forefront in client discussions. Unless a client has extraordinary amounts of wealth, the ability to incorporate some level of guaranteed income into a retiree's portfolio will reduce his chance of outliving assets. This basic shift in the retiree's goals and objectives will be opportunities for distribution planners to present their expertise and win new clients.
Clients need help with the transition from earning a paycheck to paying themselves. Without a fixed stream of income from a pension, implementing a plan involves making assumptions about expenses, inflation, taxes and future investment returns. How much can the client expect to withdraw, and from where should they take it? For example, an advisor presenting a strategy that includes variable annuities with guaranteed income benefits could address multiple concerns for this client. The equity sub-accounts provide market participation while the protection via the guarantees can offer some peace of mind in adverse market conditions, especially early in the retirement cycle. Knee jerk reactions and selling on emotion can have disastrous consequences on the longevity of a portfolio.
I have written about IRAs and the tidal wave of assets they contain. Advisors who are experienced in the complexity of IRA rules and regulation, including required distributions, inherited accounts and IRS Revenue rulings will enjoy great demand for their counsel. What is the most tax effective method for accessing money? What is a safe assumption for inflation and future tax rates?
Advisors are sometimes required to be the voice of reason, and to discourage excessive withdrawals to preserve the long term viability of a portfolio. Although spending less money is the most basic tenet of a sound financial plan, we all know that it can be the most difficult conversation to have with a client. Did I mention therapy and coaching?
Advisors would be wise to include children of retirees in their planning activities. Start dealing with the benefactors of all that boomer money. Did I mention wealth transfer strategies? The benefits are obvious, in terms of continuing the advisory relationship with the next generation, as well as instilling some good habits in kids at an age where there is a much longer time horizon for the results to compound.
Now more than ever advisors need to listen to clients and hear what they are saying. What are their two or three most pressing concerns? Chances are one of them is that they will run out of money. Advisors who have helped clients through their accumulation years must now embrace this changing landscape. As boomers begin to express a different set of concerns, including more guaranteed income, opportunities will abound for advisors with a gameplan.
Mark A. Cortazzo, CFP is senior partner with MACRO Consulting Group in Parsippany, N.J.
