Advisor Today - September 2008

FINANCIAL PLANNING
What Retirees Want
They want financial expertise—and a healthy dose of retirement counseling.
Greg Salsbury, Ph.D.

While we’re aware of the retirement crisis many Baby Boomers are facing—and the immense opportunity and imperative it represents for us—we have barely started to scratch the surface about what we need to do to address our clients’ retirement-income issues.

In some ways, our clients had the rotten luck of encountering a phenomenal bull market while the Boomer wave was cresting toward retirement. This allowed their focus to remain happily entrenched on accumulation and to avoid the com-

plex and often tedious “decumulation calculus.”

The result is a lack of understanding of just how significantly our practices, and ultimately, our thought processes, must change. Handling the evolving needs of an aging demographic goes beyond tactical changes—it requires a transformation of our economic, psychological and client-communication approach.

Most advisors realize that the shift from accumulation to distribution in-

volves a new set of variables, and that growth, guarantees, low cost, safety, liquidity and simplicity are the essential ingredients of an effective retirement-income strategy.

PERHAPS THE MOST DIFFICULT TOPIC TO
ADDRESS IS THE CLIENT’S EXPECTATIONS
ABOUT RETIREMENT.
Growth

The traditional retirement-planning model involved allocating a portion of an investor’s portfolio to fixed-return investments for safety and gradually moving even more of the portfolio into lower-risk vehicles as he neared retirement age. While this strategy provided adequate protection of principal, it did virtually nothing to protect against inflation.

Considering that the average cost of a new house has risen from $17,200 in

1963 to $284,600 in 2008, the potential for growth is crucial in order for the investor to maintain his spending power for 25 to 35 years in retirement.

Guarantees

According to Harris Interactive, 97 percent of investors list guaranteed income for life as their top retirement goal. Furthermore, retirees want a guarantee on the growth of their investment, not just on their principal. Asset allocation is one way to mitigate the risk of investors outliving their savings, but even this strategy doesn’t provide the level of guarantees clients are demanding.