WASHINGTON -- As legions of baby boomers approach the end of their careers, there is pervasive confusion about what it will take to fund a comfortable retirement, which underscores the pivotal role advisors can play in helping clients craft a sustainable retirement plan and reposition their thinking about savings, experts caution.

At a recent event hosted by the Insured Retirement Institute, Jan Scott Gundersen, managing director of advisory services at TIAA-CREF, noted that many investors are actively seeking out information on how to prepare for retirement, but that they often are ill-equipped to handle the planning on their own.

"Clients are looking for it, so I think that's the good news. This isn't an ostrich situation where they're putting their head in the sand." Gundersen says. "You can see folks are out there trying to learn, but we're asking them to learn a lot."


He argues that advisors can help their clients think through their retirement needs by moving away from the focus on a lump sum savings total, and instead presenting their retirement picture in terms of how much income their savings would generate. Then, he counsels advisors to talk to their clients about their goals for retirement, and to explain how spending patterns can change throughout those years.

"We believe the most important thing we can do is to shift that focus on saving," Gundersen says, "and turn it into an outcome -- what is that going to do for you when you get there? What type of income would you generate based on what you've saved and what you're on a trajectory to save? Turning that into a number brings the reality of that savings rate into focus."

Last week, the IRI released a new study looking at boomers' views on their retirement security, including the alarming finding that 40% of them have not socked away anything for retirement.


"That's pretty bad," says Rep. Steve Boustany (R-La.), a member of the House Ways and Means Committee who looks ahead to a broad effort to overhaul the tax code in a bid to eliminate loopholes and achieve a framework that incentivizes retirement savings. "This is getting beyond a sleeper issue. I think it's going to be a crisis," Boustany says.

Though House Republicans plan to move piecemeal legislation addressing various tax issues, including a repeal of the estate tax, Boustany acknowledges he is "not optimistic" that those measures will be signed into law. Instead, he is looking to initiate what he says will be a multi-year process of a thorough tax rewrite, conceding that the soonest the effort could be achieved would likely be early in the next administration.

However, Boustany says that the input of advisors and other financial professionals working with retirees will be critical to inform that process, and he is calling for the industry to engage with lawmakers as they consider how the tax code should accommodate various retirement offerings.

"I think you need to really continue to work with the members on the committee to educate us on the types of products you have and how they work and show what happens with tax treatment," he says.

In the meantime, the congressman and others are stressing the importance of helping to educate investors about what a realistic retirement plan might look like, an area where advisors can play an important role. Indeed, one of the key findings of the IRI's report was the impact that advisors can have on workers' confidence about their retirement: 86% of boomers who say that they work with an advisor feel better prepared for retirement because of that relationship.


The survey also highlights the extent to which boomers might have an unrealistic expectation of their retirement picture. For instance, 40% of those polled who have no private pension and less than $250,000 saved believe that they will be able to cover their basic needs and medical expenses, while still having money left over for travel and other leisure activities.

"Americans overestimate the power of income that can come out of a bucket or a little pot of savings -- the return, the annuitization of a bit of money. And they underestimate their longevity. That's a toxic combination. Those don't add up well," says Brent Neiser, senior director of strategic programs and alliances at the National Endowment for Financial Education.

TIAA-CREF's Gundersen credits investors for at least understanding the importance of a sustainable income throughout retirement. However, with the disappearance of defined-benefit plans, workers have been left to navigate the complex process of achieving a secure retirement on their own.

"People realize that there is this need. People know that they need stable income. What they don't know is how to get it," he says. "There's a whole profession that's been developed to manage pensions and handle the risk. We're now putting those risks on the individuals, and are we doing enough to educate them on what those risks are, what those opportunities are, and how they might hedge those risks?"


That's where advisors can help. In the IRI survey, seven of 10 boomers who work with advisors say that they have attempted to calculate the savings they will need for a comfortable retirement, compared to just three in 10 who have tried to run that calculation but don't work with an advisor.

Working with an advisor also correlates with higher savings rates, the survey finds. While 40% of all respondents say they don't have any money saved for retirement, 90% of those who work with an advisor have some savings.

Investors who work with an advisor are also far more likely to rebalance their portfolios, which the IRI calls "a good measurement of long-term engagement with retirement plans."

"Get professional help. Get advice," Gundersen says. "That might sound self-serving from an industry that makes money off providing financial advice, but use other industries as a reference. Your elbow hurts, you eventually go to the doctor. You might go to WebMD first, but you eventually go to the doctor and seek out an opinion on what it might be. The same thing with lawyers. This is no different. Your financial health is just as important."

Read more:

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access