Many Americans don't have enough money saved for the kind of retirement they would like, but advisors can use new strategies to help improve clients' later years, panelists said today at the Financial Advisor Retirement Symposium at The Venetian in Las Vegas.
More than 600 attendees came out to hear the opening general session, "The Future of Retirement," moderated by FA Editorial Director Evan Simonoff and which included panelists Mike Baney, northeast director for Allianz Life Financial Services; Bill Chetney, CEO of Global Retirement Partners; Marilyn Dimitroff, principal and advisor for Planning Alternatives; and Robert Kaplan, vice president at Voya Investment Management. The conference is sponsored by Financial Advisor and Private Wealth magazines.
Dimitroff outlined the scope of the escalating retirement problem: More than 80 million baby boomers—including 75 million born in the United States and also 5 million more who have immigrated here—will be retiring at a rate of about 10,000 a day for the next 19 years. But studies show that about 48 percent of older boomers and 43 percent of younger ones won't have enough money to sustain themselves as they age, Dimitroff said.
Chetney said more than 75 million have 401(k) plans, but most have no advisor to help. "I think if [plan participants] sat down and talked to someone and talked consistently through years and decades, I think we could very easily solve this problem."
Regulation and margin pressures have virtually cut most retail advisors to 401(k) plans out of the process, said Chetney. In 1995, about 250,000 advisors were establishing and providing advice to participants on 401(k) plans, but today only 15,000 advisors are involved in the business, said Chetney, who is among the 15,000.
"I can't talk to all of those participants about what they need to do to overcome their current situation," Chetney observed. "But there's an opportunity now that these 15,000 advisors can partner with or hire 10 retail-oriented advisors. Then we would have a workforce of 150,000 advisors that can go out and talk to the 75 million. That's how we are going to change the behavior and the patterns," Chetney said.
The group of 150,000-plus advisors would not just talk to participants about 401(k) plans, but also about managing debt, college savings, long-term care and other financial planning issues, he said.
Kaplan of Voya said many academic assumptions about how to solve retirement issues are very concerning. One idea often espoused is that people can just work longer. "For a lot of participants that you work with, that may not be in their control to just say, 'I want to work until my late 60s,'" he noted. In a couple, one spouse may need long-term care, so for the other to work longer may not be an option. Also, an employer may not want to have some older workers around because of the increased pension and health-care costs, he added.
Recent industry studies show estimated costs for health care could be $200,000 to $250,000, and that's about half of the amount that some academics have suggested individuals can get by with in retirement, Kaplan said. And the idea of retiring to a college town with lower costs than where a couple lived most of their lives may not work because they may not want to move so far away from their children and grandchildren, he added.
Baney of Allianz said his firm has seen a big shift among advisors now using annuities to produce lifetime income for clients. People who bought most variable annuities previously did so not as an answer to longevity, but as equity investments that offered some protection should the markets go down, he said. But because markets have been strong, only about one-third of annuity owners have started taking an income stream, Baney added.
Today, industry reports show variable annuity sales are down for the third or fourth straight year. "We're seeing a very big shift over toward the fixed side." Instead of using annuities to provide equity exposure, people are now using them to replace fixed-income investments.
Insurance companies generally offer higher lifetime income guarantees on fixed-index annuities because tail risks are fewer than they are with variable annuities, Baney said. Advisors should not buy fixed index annuities as an equity substitute, he stressed, but as a lifetime income solution.
Kaplan noted another big change that is coming that will make people much more aware of the income they will have in retirement. The U.S. Department of Labor has proposed a regulation that in July will mandate retirement plan providers to include on statements projections of the monthly income participants will tentatively have in retirement if they continue to save at their current rate.
"That is going to open the door to some real financial planning discussion," said Kaplan.