As the 77 million Baby Boomers begin to retire, the market for helping them manage their retirement income will begin to boom as well. Millions of retirees will be looking for financial advice and will likely turn to their local banks first, retirement experts say.
Steven Harder, national manager of the retirement center for LPL Financial Institution Services, said there are three competitive advantages the banking channel has in the retirement income market: trusted consolidation, valued and unbiased advice and location, location, location.
"People will consolidate their income at retirement," Harder said during a recent webinar titled "Opportunities in Retirement Income Planning" sponsored by sister publication Bank Investment Consultant. "What better place [to seek advice] than at their trusted financial institution, where they have had accounts for the past five, 10, 15, 20-plus years? We can offer this service face to face, because we're already in their community."
Pamela Black, editor in chief of Bank Investment Consultant, said that as investors shift from accumulation to distribution mode, advisers will "need to make sure they know how to help clients create a reliable income stream for retirement, or in these days, more commonly partial' retirement."
John Diehl, SVP of the retirement solutions group for The Hartford/Planco, said the role of the adviser is to encourage their clients to get started in retirement income planning, help them feel empowered about their choices, manage their cash flows and transition to living off their savings and investments.
"Retirement is a goal we've been looking forward to since our very early working years," Diehl said. "Until we get there, we all picture how great and wonderful it's going to be. At that moment, the moment when income turns off, there's such a sense of apprehension about what may lay ahead."
Diehl said most people don't think about the income danger of living 30 years into retirement. In the accumulation phase, the objective is to collect as many assets as possible. In the retirement income phase, the objective is to help the client not outlive their assets, he said.
"The real question is: Exactly how long is that retirement going to last? We're dealing with a financial goal that doesn't have a definitive end point," he said. "There is a psychological shift going on between the accumulation phase and the retirement phase."
New risks people face at retirement are longevity, an excessive withdrawal rate, inflation, asset allocation and increasing healthcare costs. Diehl said he believes longevity risk is the most dangerous because it's the one that most people are ignoring.
"During our working years, we would hope that our employer would help us shoulder inflation risks with raises and bonuses," he said. "There is no such parallel in retirement income planning. In retirement, the portfolio takes on the same role that my employer did. I will have to rely on my portfolio to pay me a regular wage."
Diehl said he has given between 2,000 and 2,500 client seminars in the past two years, and he likes to remind people that a gallon of gasoline cost 15.5 cents in 1940 and a first-class postage stamp cost 6 cents.
"If we're going to be retired for 30 years, these things are going to be a concern," he said. "As an adviser, no longer can you just be an investment manager; you are also a cash-flow manager."
Rising healthcare costs are also a major concern, with increases far exceeding the pace of inflation, he said. Physician services have increased an average of 4.3% annually, and prescription drugs and medical supplies have increased an average of 5% annually, he said.
In order to ensure one's retirement income lasts for 30-plus years, an investor needs assets that will continue to grow over time, he said.
Diehl said an adviser needs to help their clients take an inventory of their expenses, analyze their income needs, reposition their assets and monitor their income plan.
A retiree can divide their expenses into basic needs, discretionary needs and protection needs, he said. Basic income needs like food, housing and utility bills should be taken care of by guaranteed income sources like Social Security payments, defined benefit pension plans or annuity payouts.
Discretionary income needs, like travel or large purchases, should be paid for with dividends from investments like stocks, bonds and mutual funds, he said. Long-term protection needs should be paid for with life and health insurance policies.
If the market is in a slump, it may be prudent for a retiree to cut discretionary expenses and wait for the market to rebound, he said, or even postpone a full-time retirement. An adviser can also help their client reposition their assets to help fill the gaps in their distribution needs, he said. When managing retirement accounts, the adviser should become a client's life coach and cash-flow manager, Diehl suggested.
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