Along with state-of-the-art financial products and services, investment advisors must embrace a major shift in client mindset if they want to effectively serve the 78 million Americans fast approaching retirement, said veteran advisor, author and college professor Deena Katz during her standing room-only workshop at the 10th Annual Financial Advisor Symposium in Chicago earlier this week.

   "Boomers are rejecting the notion of retiring as dropping out," Katz said. "Who would have known the drop-out kids in the 1960s would become workaholics in the 1980s and 1990s?" More than 80% of Americans in their 60s and 70s plan to continue working and 17% want to start their own business, according to the AARP.

   "Sixty is the new 40," Katz told advisors. "Mid-life will be extended for years, even decades." And in that time investors and their advisors will be confronted with a host of new challenges including career switches and complex family lives. "I had a client come in last year, a CEO of a pharmaceutical company who wanted to become a high school science teacher," she said. "And he wanted me to work with his wife to assure her that this wouldn't impact her lifestyle. Today he's a science teacher in Texas."  

   Katz, chairman of Evensky & Katz in Coral Gables, Fla., decided several years back that after a lifetime of practicing and writing about financial planning, she wanted to teach it. She's now an associate professor in the division of financial planning at Texas Tech University.

   The dramatic shift in demographics in the U.S. will determine how people live, what they buy and how they save, said Robert Froehlich, vice chairman of DWS Scudder, who told the more than 800 advisors who attended the conference that he expects boomer behavior and investment patterns to drive the Dow Jones Industrial to 25,000 fairly rapidly. "I think it will hit 17,000 in the next year."

   At the same time, with some boomers expected to spend 35 years or more in retirement, Katz said that income planning finesse will become paramount. And not all boomers are alike, she warned. There are significant differences and needs between early-stage boomers who are likely to have defined benefit pensions and paid-off homes, and later-stage boomers who "may be wearing or driving their retirement" and may not have enough liquid assets to fund a comfortable retirement.

   "We need to become experts in de-accumulation and cash flow planning, net inflation," Katz said. That will force advisors to look seriously at the new breed of annuities products, which will allow them to create personal pension guarantees that combine income and growth. "Clients will need cash flows from a total return portfolio-not just dividend and interest income."

   To be able to assist boomers who may really start to feel the financial pinch in later years, Katz recommended that advisors start familiarizing themselves now with nontraditional cash flow products such as reverse mortgages and life and viatical settlements. "These may be the only option for some folks and if we leave it to someone else, that's where our clients will turn," she said.

-Tracey Longo