(This essay is drawn from Nick's keynote address to the Innovative Real Estate Strategies conference.)

On April 7 of this year, my baby sister Kay turned 65 years of age. Assuming that April 7 was just an average day in the decade 2011-2020, so did 9,999 other Americans. For the age of the baby boom retirement wave is well and truly upon us: Every day for these next ten years, on average, 10,000 Americans, born between 1946 and 1955, will hit 65.

If they were perfectly rational, and able to consult their own highly instructive life experience, these 30 million-odd people would intuitively see what the central economic problem of their retired lives is most probably going to be. Moreover, they would apprehend with equal facility what the mainstream investment solution to that problem has historically been.

Kay's life is a pertinent example. On April 7, 1946, the day of her birth, a first-class U.S. postage stamp cost 3 cents. On her 65th birthday, first-class postage cost 44 cents. This would suggest, however anecdotally, that the basic problem in sustaining one's standard of living during the two-person, three-decade retirement of the average baby boom couple will most likely be what it's been all their lives up 'til now: the erosion of purchasing power.

Moreover, on April 7, 1946, the Standard & Poor's stock index closed around 18. On the day Kay turned 65, it was 1,333. This should suggest that one very effective way to combat the erosion of purchasing power over time has historically been to invest in diversified portfolios of high-quality businesses-both for their rising dividends and for their long-term appreciation in value.

The trouble, as any seasoned financial advisor will attest, is that this generation-raised on its parents' horrific accounts of the financial, economic and human devastation of the Great Depression-seems incapable of perceiving retirement primarily as a problem of purchasing power. Rather, they are obsessed with the safety of their principal, as if freezing the number of units of the currency they own-and fixing the income from that principal- would ensure a secure retirement.

Moreover, fed on their parents' cultural myth that the cause of the Great Depression was the stock market crash of 1929, these early boomers cannot see how effectively mainstream equities have preserved and even enhanced purchasing power during their lifetimes. Their worldview is closer to that of the generation which reared them: "The stock market is too risky."

Thus the fundamental challenge- and the great career opportunity-for today's personal financial advisor is in helping these children of the children of the Depression redefine risk and safety. Because for many if not most of the boomers now retiring, a purely fixed-income portfolio will at some point begin to fail their need for lifestyle-sustaining income during three decades of a rising-cost life.

At the same time, we must live in the real world, and recognize that these people, even if we are able to induce them to accept an equity exposure historically appropriate to their income needs, may not be able to hold substantial positions in equities through even normal episodes of equity volatility. It is perfectly true that the broad equity market has risen by a factor of 70 in Kay's lifetime. But that market has also declined an average of 30% 13 times in the interim. And this is not a generation that will ever be good at distinguishing between temporary volatility and permanent loss.

This, to me, is exactly the way in which well-structured real estate investments become one intelligent alternative for today's retirees. Because professionally managed investment real estate-as difficult as it is to generalize about-has historically been an effective generator of both inflation-hedged cash flows and asset values over time. And these characteristics-the ability of rents to rise in the long term, supporting increased income and rising asset values-are precisely what today's retiring boomers will so desperately need in the years and even decades to come.

Moreover, for whatever complex of reasons-psychological as much as economic-we advisors simply find our retiring clients more comfortable with solid real estate investments than they are with shares in portfolios of superior companies. You may feel, as I certainly do, that this makes little objective sense. But it is somehow fundamental to human nature in our time-and human nature, more than we may care to admit, is the business we're in.

Please note that the posture I take here is not at all predictive: I have no more idea where we are in the real estate cycle than I do where we are in the equity market cycle. Nor am I even remotely suggesting that real estate "outperforms" quality equities in some way-a notion I regard as meretricious. Rather, I'm all but pleading with the advisor community to see that the retiring boomers must have adequate exposure to rising income and asset values if they are to survive three decades of rising living costs. I'm not advocating for real estate versus equities; I'm advocating strenuously for both, and against an over-reliance on fixed-income investments.

Yes, real estate is an "alternative investment." But it's not an alternative to mainstream equities, to which it is both a complement and a historically powerful diversifier. It's an alternative to bonds.

This is true in the long run for all the reasons I've been at pains to elucidate. But it may also have some resonance in the "here and now," as well. For if today's retiring boomers are apt to overestimate the "safety" of fixed-income investments because their basic definition of safety is flawed, it's also the case that they have never really seen a major decline in bond prices.

With the arrival of short-term interest rates at zero in the wake of the financial crisis, the bond market may be seen to have completed a 30-year bull market-perhaps its greatest ever-that began in 1981 when Paul Volcker at the Federal Reserve just about single-handedly broke the back of inflation. Interest rates have fallen-and thus bond prices have risen-throughout the intervening three decades, with few interruptions and none in recent memory.

But I invite the career-oriented advisor to observe what happened to bond prices in 1987, when the fed funds rate jumped from 5.88% to 7.31% in nine months. The resultant crash in stock prices was one outcome of this sudden rate spike-but it wasn't the only one.

And I especially recommend a hard look at the devastation in bond prices when-in seven relentless rate hikes over 12 months-the Fed jerked the funds rate from 3% all the way to 6% between February 1, 1994 and the same date the following year.

Again, I make no attempt to predict the timing or shape of the interest rate cycle. I say only what I believe to be true. (1) Just as the boomers tend to overestimate the effect of equity volatility on stock values, they may very well be underestimating the effect of rising interest rates on bond prices. (2) With the short end of the yield curve at zero, it is simple arithmetic that the next major move in bond prices-whenever and however it comes-probably can't be up. (For a fuller discussion of these phenomena, I recommend advisors look at Forbes bond columnist Marilyn Cohen's recent book, Surviving the Bond Bear Market: Bondland's Nuclear Winter.)

In light of all these factors, I believe it's time for advisors to reassess the place investment real estate should have in their long-term planning for boomers reaching retirement. Just make sure it's real estate for the right reasons.

© 2011 Nick Murray. All rights reserved.

©2011 Nick Murray. All rights reserved. To see a sample issue of Nick's monthly newsletter, Nick Murray Interactive, you may visit www.nickmurray.com, and click on "Newsletter." New subcribers will receive, at their option, either Nick's book on prospecting, The Game of Numbers, or his practice management book Behavioral Investment Counseling. And, as a bonus, his three-hour CD program Managing Investor Behavior.