January 03, 2007

SOURCE: InsuranceNewsNet, Inc.

According to the FDIC, boomers retirement income will center on Social Security and pension income. While Social Security is intended as a supplemental income, Americans relied on Social Security as the source for at least 80 percent of their income in 2003. This is just one statistic that reflects, generally, that retirees are seeking simple solutions to security, solutions they can rely on. This should turn on the light bulb for advisors to realize how important it is to focus on the “needs” of retiring boomers.

While there is no definitive standard for how much a person needs for retirement, many boomers appear to have a net worth insufficient to meet basic retirement needs.

It is expected that retiring boomers will have a tough time. An estimate of their accumulated assets -- including stocks, bonds, housing, etc. -- could plunge by up to 50% over the boomer generation's remaining life span.

So how much will boomer assets be worth? Right now it looks to be roughly $2.1 trillion, come year 2011.

In fact, total asset value may even approach $5.1 trillion, when you bring in investment-only accounts, 401(k) plans and the expected rollover of defined contribution plans.

It is such a hefty, mouth-watering pie, that all distributors want to get a slice of it. 

And if they’re not careful, businesses managing those accounts might end up seeing the major bulk of those funds slip through their fingers and into the competition’s piggy banks, according to analysts.

Experts have observed that retirees who bought separately managed accounts (at least 20% of the population segment) tended to invest up to 30% of their assets.  This indicated that retirees prefer to live simply with income at the top of their priorities. That’s why rollover product innovators are taking careful notice of what retirees hold dear.

A number of companies have launched products and services to attract the attention of citizens aged 55 years old and up.  They recognize that people who are over 65 comprise the largest segment of potential investors. Up to 70% of investable assets in America are controlled by this market segment while citizens over 65 control 40% of the wealth, according to Financial Research data.

Merrill Lynch, one of these companies, recently conducted its independent survey among retirees and noted the following observations:

1. 23% of respondents did not have any retirement plans at all
2. 2.38% of respondents still plan to work on part-time basis after retirement
3. 3.67% of respondents have solid retirement plans and are ready for life after retirement

Based on a new retirement service program by Merrill Lynch called the “personal paycheck,” it was  revealed that regardless of income brackets, investors desire better cash-flow security.  The company did not foresee the wide acceptance of the product even among investors who have $2 million tucked away in banks.  They initially thought the service would only appeal to customers of $250,000 to $500,000 asset-worth.

Quite similar with the personal paycheck service, MassMutual's , which launched last June 2006, gradually switches investors to an annuity enrollment, specifically annuities that churn out a steady stream of retirement income.

In MassMutual's ladderized model, the usual situation investors face (i.e. times when clients need more liquid assets when they first retire) is addressed.  The only difference here is, with MassMutual’s service, as time passes, clients benefit from fixed expenses.

In whole, the dilemma most industry players face is drawing a fine line between security and flexibility.  It is especially important, in light of recent senior scandals, that advisors focus on suitable products that ensure security in the best interest of the consumer.

According to the MassMutual model, clients can also:

1. Convert earnings to cold cash
2. Reinvest earnings from annuities
3. Use income to buy another type of investment model
4. Use gains to purchase annuities
5. Reinvest earnings to buy new funds
6. Draw earnings from their funds

With the demand for rollover products seemingly on the continued rise, companies must continue to make products as investor-friendly and as adviser-friendly as possible in order to keep competitors at bay.

Subsequently, companies have to give advisers the right kind of public education campaigns, the right imagination, marketing materials, tools, as well as, transparent structures.

The bottom-line is companies need to spend lots of time and resources developing products that are very easy to market and sell.  It’s imperative that these products make it also easier for advisers to spend longer time discussing clients’ specific needs, rather than balancing financial sheets.

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