This huge group will change priorities and approaches on retirement
A few weeks ago I got an offer from Time magazine to
extend my subscription for a discounted rate that they were only
offering to "senior citizens." Don't get me wrong, I was pleased to
receive 85% off the cover price, but I couldn't figure out to whom Time
was making the offer. It certainly wasn't me. A "senior citizen" is a
blue-haired grandma who reads Reader's Digest in the bathroom each
morning and eats the local Denny's early-bird special every night.
That's not me. It's true that I am 55 years old, but I'm not a senior
citizen. In fact, applied to me, I find the term offensive.
I'm a roaring baby boomer, making my initial appearance in 1950. There are about 75 million of us born between 1946 and 1964. Boomers are the products of a post-war, global phenomenon that started abruptly and ended the same way. For most people the term "boomer" conjures up the 1960s' rebellious and protesting hippies who became the materialistic uber-consumers of the 1990s.
There are 19 years between the first boomers of the late '40s and the later boomers of the early '60s. When the early boomers were staging protests, the late boomers were barely into grade school. There is a tendency for society to view us as this monstrous homogenous cohort, but the fact is, although we're big, we're diverse-in lifestyle, experiences and values. Our connection, aside from sheer size, is that we inherited, encountered and redirected social change. We were born into a post-war transitioning society requiring us to make choices about education, work and family, the consequence of which set whopping trends in motion and profoundly affected succeeding generations.
Our powerful sociological dominance can be measured by looking at how advertisers have pandered to us over the years. When I was 15, "cute young things" sold me soap, cosmetics and clothing. Today, well-seasoned, yet well-preserved celebrities show me how to grow older with grace and charm but nary a wrinkle. Boomer experts know just how to appeal to us. A recent ad in AARP Magazine depicted a leather-clad over-50 couple, leaning on a Harley. The tag line read, "What are you waiting for?" What were they selling? Motorcycle insurance, of course.
That's why I am so surprised that Time elected to encourage me to "re-up" by referring to me as a senior citizen. One would think that marketers at Time would have known this long ago. Funny, I would have been infinitely more inclined to take the offer if they had given me a "boomer" discount.
Our generation continues to affect major changes in American lives, including rejecting aging stereotypes and traditional retirement scenarios. We have been named "The Sandwich Generation," with parents and children simultaneously requiring our financial and emotional support. We started families later so, as we planned for retirement, we discovered that we needed to pay for higher education for our children at the same time we were trying to fund our retirement accounts. And, because of great advances in the medical field, our parents are living longer but not necessarily better-quality lives, often requiring us to support and care for them, too.
Consequently, as we rapidly approach the traditional age of retirement, it's clear that after years of uncontrolled consumption and extravagant lifestyles coupled with the new demands of family circumstances, we simply have not saved enough to retire. So, in the inimitable boomer style, we won't do it! Nor will we admit that rejecting traditional retirement is forced by lack of resources. Boomers will undoubtedly "retire" conventional retirement by redefining it.
Already, researchers have begun to produce studies suggesting that retirement speeds up emotional and mental deterioration. The emerging views support the conclusion that work is empowering and retirement is demoralizing. We're starting to believe that leading a productive, useful life by working as long as possible is the key to longevity. According to the 2004 Spectrum Group report, Serving Baby Boomer Retirees, 74% of affluent boomers who are still at work do not plan to fully retire when they reach their chosen retirement age. This supports findings of the AARP study in 1999 that says eight out of ten boomers expect to work at least part time in retirement.
Boomers will reframe the meaning of retirement, and eventually assign negative connotations to the word "retirement" as if it means dropping out and becoming physically and intellectually idle. Those who attempt full retirement may be viewed as "slackers." Retirement is not a threat because we failed to save adequately; retirement is a hazard because like smoking, it's bad for you.
Our positive attitude about the restructuring and reinventing the next phase of our lives will find us moving to new homes and starting new careers with energy and enthusiasm. Boomers will accept positions where they can be advisors, consultants, part-time teachers and students. Those who stay where they are will move into positions to train and mentor the next generation of workers. About one in six boomers will start his own business in lieu of traditional retirement.
Coincidently, this new trend toward continued full- or part-time work may just solve the expected employment crisis in the workplace should boomers retire in seismic numbers at the historical retirement age. Anticipating this demographic shift, IRS regulations will allow phased-in retirement scenarios so that boomers can work part time and collect partial pension benefits as well.
After years of ultraconspicuous consumption, boomers will finally say, "enough is enough." We will embrace a simpler lifestyle, replacing visits to the Sharper Image with visits to Target. Many boomers will sell their four-bedroom, three-car-garage houses for smaller and more manageable homes in smaller towns. Those who opt for larger cities will move to the urban downtown areas and live in smaller, newly refurbished condos with centralized community rooms to facilitate their new emphasis on relationships and spirituality. Boomer goals will be more modest than they ever have been. They want simplicity in their lives, and they are willing to downsize to get it.
Investing will once again become a means to an end, rather than a game of bragging rights and a contest to maximize returns. Focusing on stable and predictable income, we'll learn to adjust our expectations for maximizing returns and be satisfied with realistically modest ones that will meet our goals and objectives.
We'll begin a period of introspection, focusing on spiritual and emotional growth. We will become more devoted to our religious roots, recognizing the value of family and family values and work to make a significant impact on future generations. Boomers will redefine benefits and workstyle flexibility for the progressively older workforce, helping society develop a new respect for the experience, expertise and work ethic of the mature worker.
Our prior disposable "paper plate" mentality will be replaced with a respect for preservation, longevity and usefulness. Our whole orientation toward materialism will change to reflect attitudes of earlier generations. When my parents needed a refrigerator, for example, they saved until they could afford one. (Notice I said "needed" one.) During the boomer's accumulation and consumption phase of life, when we wanted a new refrigerator we bought it, and then paid for it on credit over time. (Notice I said "wanted.") At some point, we'll finally remember what we were screaming about in the '60s-we don't own things; they own us. Being debt-free and dependent-free will become the hallmark of the boomer generations.
So what will the role of financial advisors be in this new environment? We will place our planning emphasis on "decumulation," rather than on "accumulation" as we did in prior years. We will focus on wealth preservation and creating income streams. The risk of longevity will be of utmost concern as advisors try to figure out how to make the peanut butter and jelly run out at the same time.
Products and services will change, too. They will continue to become commoditized, valued only for how they solve problems or facilitate future security, rather than increasing wealth. Boomers will be the first generation that embraces the concept of "fee-for-advice," comfortable with paying for advice but not for access to products.
As advisors for this cohort, we will need to broaden our skills to accommodate the various needs and circumstances of the restructured boomer. Advisors will become lifestyle and employment coaches, providing second- or third-career advice along with our holistic financial planning. We'll become small-business consultants, guiding boomers who elect to make the leap from employee to employer as part of their restructuring plans.
The progressive privatization of Social Security and new distribution rules to accommodate the new "phased-in retirement" will have advisors seeking creative decumulation strategies for boomers. Already, the immediate income annuity is enjoying a resurgence, and many fund companies have been beefing up their life-income and target-income funds. However, newer strategies and alternative investment vehicles will give us more flexibility in designing investment solutions.
We will become much more knowledgeable about aspects of "living" estate planning, such as complex long-term care strategies, living wills and health care surrogates. Reverse mortgages and life income settlements are as likely to become part of our planning discussions with clients as long-term care insurance is today.
Boomers will base their selection and continuation of the use of a financial planner on the basis of relationships and shared values. They will look to advisors for perspective and advice on many aspects of their daily lives-not just the financial ones. Consequently, if you've been cultivating your boomers and raising your advisor role beyond asset management to becoming the trusted family advisor, you'll be well-poised for the new wave of financial advice in the future.
Boomers who are also financial advisors will look for clients they can shepherd and mentor through this next phase of life. We will focus our practices on retention as well as growth. Essentially, we will follow the same patterns as the rest of our generation, looking for simplicity, quality life experiences and a flexible work style. We'll learn when to shut off our phones and ignore our e-mail, and that financial advisory and wealth management involves managing our own lives and priorities first.
These changes will happen fast as the early boomers (born 1946-1954) reach 60 in a few short years. The opportunities for boomer-advisors are endless. Begin now to adjust your practice to meet the challenges of this new wave of the future.
Deena Katz, CFP, is a nationally
recognized financial advisor and is president of Evensky & Katz
Wealth Management in Coral Gables, Fla.