The Boomer Business

 

I sometimes look at the significant financial issues our country is facing — and that individual households within our country are facing — and I ask myself, “Are we really that naïve? Did we not see this coming?”

Everything’s clearer in hindsight, of course, and we now better understand how we got ourselves into the current mess of the real estate crash, unprecedented national debt, high unemployment and so forth. (By the way, understanding how we got here doesn’t mean we’re ready to take the difficult steps to get us back to where we need to be. But understanding the problems is a necessary start.)

No matter how clear the problems look to us right now, there is no doubt that we have had an economic shock to our system. And I would venture to say that no demographic group was taken more by surprise than the baby boomers. Many of the significant economic beliefs held by baby boomers (and inherited from their parents) were turned upside down: “Your home is your best investment and will never lose value.” “If you work hard and save wisely, you’ll certainly have enough to retire when you’re 65.” “If you find a good company with which to grow your career, stick with it, and the company will certainly reward you for your dedication by sticking with you.”

But the problem goes beyond simple shock at learning that much of what many of us believed about our economic way of life no longer holds water. The shock is a hit to our financial lives, causing many boomers to delay retirement, scale back their lifestyles and make other important changes to the way they live.

In this month’s discussion, I posed questions about the boomer market to three savvy producers who specialize in serving this group of people. Answering my questions about the unique problems boomers face and the solutions that can help them are Jennifer P. Mann, M.B.A., CLU, ChFC; Jeff Root; and W. Thomas Spencer, Jr., CLU, ChFC.


Question 1

Charles K. Hirsch, CLU: Can you talk a little bit about what attracted you to the boomer market and the steps you took to start working in it?

Jennifer P. Mann, M.B.A., CLU, ChFC: I am a member of Gen X, so what attracted me to the boomer market was the desire to make sure my parents were set up properly. As they were putting together their estate plan, I realized they were having a hard time communicating what they wanted and understanding what their attorney was saying. Because of this, I began taking classes and doing research into issues that affect their generation as they approach and begin retirement.

Jeff Root: Boomers are living and working longer, to the magnitude no other generation has had to prepare for. Many are looking for answers. I specifically target boomers in the government because they usually have all their benefits through their employer. Boomers over age 50 are typically paying too much for their life insurance — if covered by FEGLI, the Federal Employees’ Group Life Insurance — or are surprised to hear the outrageous and increasing price they’ll be paying in retirement. Once I put something level and permanent in place, that they can afford now and in retirement, it opens the door to work out the what-ifs in their long-term plan. This is something most are open to discuss once they realize their benefits won’t be as comprehensive in retirement.

W. Thomas Spencer, Jr., CLU, ChFC: During the first 20 years of my practice, I assisted baby boomer clients as they got married, purchased homes, built businesses, raised families and educated children. Over time, as they had varying degrees of success in accumulating wealth, they all began to focus on retirement. My business had a corresponding change in focus to provide a comprehensive approach to retirement planning. This was simply a logical evolution to service the needs of an aging clientele.


Question 2

Hirsch: As you look at the boomer market that you serve, is there a primary underserved financial need that you find to be most common among boomers? If so, what is it? And how do you address it? If not, what are the most common issues you see in this market?

Root: Long-term care. Most advisors are very good about bringing this up. I would say it’s undervalued by most boomers, and that’s the real problem. It’s something you have to continually bring up until it clicks with them. Many advisors give up after the client says they aren’t interested. It’s not that they’re not interested; it’s just they don’t recognize, at this point in time, the impact it can have on their life and the burden it can place on their family.

Spencer: We repeatedly see baby boomers who have a vision of what their retirement should look like. Frequently, this vision is inconsistent with their resources. Through a process of financial modeling, we bring our clients’ expectations in line with their financial reality. This is often eye-opening to clients and leads to greater discipline with regard to investment management, spending and attention to the loss or incapacity of a spouse.

Mann: One of the biggest issues I see is the lack of long-term care insurance (LTCI) held by the boomers. Although this is a hot topic for many of them, many more either assume it is too expensive, assume someone else will take care of them — either family or Medicare — or feel they will be healthy and won’t need it. I generally address this by giving clients some real life examples of how LTCI works. I then walk them through the features of a policy and show them they can always design a plan to cover at least part of the costs if they cannot afford a Cadillac plan.


Question 3

Hirsch: In your view, has the life insurance business done an effective job of developing and presenting effective tools for boomers to use to address their financial risks and needs? If not, how can the business improve in that regard, and does the producer have a role in any such improvement?

Spencer: The life insurance industry has done an effective job with regard to developing tools to address the financial needs of baby boomers. Having said that, the industry has been less effective at encouraging the transition from product to process. Too often, advisors lead with a product solution without implementing an effective, repeatable process. Our firm has developed a disciplined process of evaluation, positioning and management. Through this process, clients and prospects learn the strengths and weaknesses in their current arrangements; they see the financial implications of various approaches available to them. As a result, they choose to buy products and services to meet their needs. Traditional product sales do not come into play.

Mann: In my opinion, one of the best products out there right now for safe money that does not need to be immediately accessed is whole life insurance. Many boomers are still hesitant to get back in the market but are unhappy with the returns they are getting in money markets, CDs and savings accounts. Whole life is a great solution for these people. I think part of the problem is that it is a difficult product to explain. If more advisors — especially those with a large media presence — were to learn and talk about this, more boomers would be comfortable taking advantage of the opportunity.

Root: Yes. The life insurance companies definitely suffer from boomeritis. The industry has been finding more innovative ways to reach them more than any other group. They’ve been following the money for a while now by creating and marketing products to address the fact that boomers will be living and working longer.


Question 4

Hirsch: Can you share with us a particularly effective approach that you have used recently in the boomer market?

Mann: One product I have been using lately is the immediate annuity. A big fear of my boomer clients is running out of money in retirement in light of the economic downturn of the past few years. However, they remember somebody told them that annuities were bad. The challenge is to help people understand the various types of annuities and how to effectively use them to better the boomer’s situation. Once they realize they can have monthly income for life to cover some or all of their basic expenses, they are much more enthusiastic. There are many features available today that can be added to address their concerns.

Root: Give them options. Boomers have some fresh financial scars after just being burned in the stock market, the housing market or both. Many tend to have this do-it-yourself attitude. I have found that they aren’t looking for an advisor to tell them what to do, but rather someone to give them options and provide the information for them to decide on their own.

Spencer: We are living in an unusual financial environment at this time. We are describing it to our clients as something like a barbell. At one end of the barbell, you have cash, which earns almost nothing. At the other end of the barbell, you have stocks and bonds, which can be a scary place to invest. Volatility has been fueled by money jumping from one end of the barbell to the other. Our firm has developed a portfolio of mutual funds exhibiting extremely low volatility. This portfolio offers our clients a place in the middle of the barbell. It allows them to anticipate a reasonable return while avoiding excessive volatility. This approach has been very well received for positioning of retirement assets.


Question 5

Hirsch: Any further thoughts?

Root: I’m amazed when I speak with recently retired boomers who don’t have a long-term plan and can’t afford life insurance, long-term care or any monthly payment, but are healthy and retired at 65. Why would you choose to retire broke? Retiring is optional, not forced. There is no shame in working past 65; heck, you’re going to be living longer, so it makes sense to work a little longer if you have to. Only retire if it makes life sweet, not a struggle.

Mann: I think working with boomers and meeting their needs will be a critical part of the industry going forward. Their ability to support themselves through retirement will have a dramatic impact on the economy as a whole. It is our responsibility as advisors to guide them through the changing environment and help them successfully navigate their finances during their golden years.

Charles K. Hirsch, CLU, is a contributing editor to Life Insurance Selling. He is the president of Hirsch Communications Consulting LLC, in Florissant, Mo.

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