Advising Boomers

May 2005

 

Who Are The Boomers?

Better off than their parents, luckier than their children, these happy many created a new zeitgeist-and became its victims

By Janet Aschkenasy

Tell the truth: upon hearing the term "Spock Generation," would you think first of the steely, pointy-eared Vulcan of Star Trek or the kindly pediatrician whose book on childrearing served as the bible of post-World War II parenting? Each, in his own way, became a touchstone of the Boomer generation, a way of understanding this group.

The Baby Boomers represent the first so-called birth "cohort" to be raised with television. So maybe it's no surprise that folks who were born between 1946 to 1964 are more familiar with the first officer of the Enterprise. But it was Dr. Benjamin Spock, the famous physician and political activist whose book helped create them in the first place.

Spock the author assailed materialism but told parents to go ahead and give their kids plenty of love and attention. Ironically, critics have long blamed him for the excesses of the 1960s, because of what they felt was his overly permissive approach—a charge he always denied. The TV Spock, meanwhile, became known for his memorable Vulcan greeting "Live Long and Prosper." And the Boomer generation went ahead and did just that.

As it turns out, however, the 76 million Boomers have their work cut out for them when it comes to putting all of those financial houses in order. At first glance, it seems that Baby Boomers are doing fine. For the most part, they are products of the prosperous post-war years, and they've fared well. Measured in constant 2001 dollars, Boomers' median net worth, exclusive of home, rose from $13,410 in 1989 to $50,700 in 2001.

Of course, these figures don't guarantee a good retirement. But the good news is that this is a group used to finding creative and offbeat solutions. Advisors who tune into this "we can make it happen" attitude should excel in their relationships with today's 40-and-50-somethings. The idea of gaining personal contentment through a new career or alternative lifestyle seems a lot more appealing to many Boomers than traditional notions of retirement security, advisors are now learning. Boomers will change employers, downsize, move across the country, or shift from investment banking to jewelry making if that's what it really takes to float their boat.

And advisors, even those who are Boomers themselves, do understand that dreams do need to be financed. And that's where the opportunities are for the creative planner.

First, advisors need to recognize that not only are there are a lot of Boomers, but they're going to be around for a while. Psychologist and gerontologist Ken Dychtwald recently observed that the average life expectancy has increased two and a half years for every decade of the 20th century, a trend that could see many Boomers living until 95 or older. On the other hand, the median retirement savings of the Boomer generation isn't even close to the $400,000 or so that most planners say they need their prospects to have to make financial advice worth their time, but actually about tenth of that, or a measly $40,000, according to Dychtwald.

What happened? Boomers were raised in an age of no-holds-barred entitlement. They bear none of their elders' memories of the Great Depression, and generally, none of their parents' and grandparents' commitment to savings. "The Boomers have heard the stories, but it's not personal for them," says J. Harold Williams, a CFP with Linscomb & Williams in Houston. Williams recalls that the investors of his father's generation were often scarred for life by the knowledge that one could be completely wiped out by a stock market decline. And although it wasn't nearly as bad, the tech bubble hit the Gen Xers a lot harder, at least emotionally, than anything the Boomers faced.

Then there is the fact of their large numbers: "From the day our mothers became pregnant, and at every stage of our life, we represented a huge consumer group," says Bedda D'Angelo, CFP and president of Fiscal Conditioning, Inc., a fee-only advisory firm in Chapel Hill, N.C. "There were so many other babies born the day I was born my mother couldn't even get a hospital room," says D'Angelo, who came into the world in 1947. "She had a bed in the hall along with numerous other new mothers." And "since there were so many of us competing for resources and jobs, you had be very very good to stand out and be recognized. As a result we tend to be high achieving workaholics with high standards and high expectations."

PROSPERITY
The group's legendary prosperity and Madison Avenue's push to woo Boomers have led to problems. With their generation's unprecedented size and easy access to credit card debt, the Boomers have been marketed to as if there were no tomorrow, and have tended to purchase with the same fervor. A report from two Duke University sociologists, released in December 2004, acknowledges that Boomers have higher standards of living on average than did their parents, grandparents and great-grandparents.

But the report, "The Lives and Times of the Baby Boomers," also stresses that Boomers are not a homogenous group. The study divides the Baby Boom into early Boomers, born between 1946 and 1955, and late Boomers, born between 1956 and 1964. It finds, for instance, that "at ages 31 and 40, the older cohort was more affluent (in constant dollars) than the younger cohort, having both higher levels of wealth and lower levels of debt," and that "the median net worth of the early Boomers in their 30s was almost twice that of late Boomers." Advisors clearly have their work cut out for them when it comes to the 40-something Boomers.

A major reason for the discrepancy is the retirement plan change that hit the Boomer generation squarely in the middle. The Duke University study points out that Boomers as a group entered the workforce at a time when employer-funded defined benefit pensions were gradually disappearing. Instead, 401(k) and similar plans that transferred investment risk (and some or all of the plan funding costs) to employees were becoming de rigueur. Late Boomers are less likely to have retirement plan coverage than the older group did at the same age. Moreover, savings in 401(k)-type plans have been pretty meager, according to this research.

"In defined contribution plans, early Boomer men had median account balances of $26,000 in 1998, and early Boomer women had $22,000; late Boomer men had $22,000 and women $8,000," according to the Duke findings. Younger Boomers of course had less time to save as much in their employer plans by 1998. Still, for someone aged 40 or older, $8,000 is barely a drop in the bucket. The good news here, at least for the planning profession, says Williams, is that this group "for the most part has had to be more the architects of their financial future than their parents were." That's made them more apt to seek out and pay for financial advice—something that will continue to benefit the financial planning profession.

Of course, Boomers in many cases have to look out for others beside themselves and their kids. "The Baby Boomers are also known as the sandwich generation because they are caught between taking care of their aging parents and taking care of their children," observes Sarvey Canella, CFP and president of the Canella Financial Group in Moon Township, Pa. (See "The Sandwich Years," page 32) "This seems to be a large strain not only on their emotions but also on their time," observes Canella. And clearly, a major question for Boomers at every economic level is who'll pay for healthcare for themselves and their parents. One planner in Atlanta is so concerned about the growing ranks of elderly single women that if clients in the female-and-over-50 crowd disregard her recommendation to buy long-term-care insurance two years in a row, she asks them to sign a disclosure letter saying they've actively declined to make the purchase.

Boomers are obviously facing some real challenges. And yet many planners admit that they're reticent to work with lower-end Boomers with less than roughly $400,000 in investable assets. Even among wealthier clients and prospects, many have tended to look first to product sales and have done little to stimulate out-of-the-box thinking that might yield innovative life planning choices. They may even portray the increasingly popular choice of working after age 65 as something to be avoided at all costs, rather than an empowering adventure enabling one's clients to finally do what they love.

"We in the financial planning industry are very disingenuous," says D'Angelo. "We don't even talk to people until they have enough assets accumulated to purchase an insurance product or mutual fund. That means we only take clients who already know how to plan. It requires solid financial planning skills to accumulate $400,000 in personal assets," she says. "That means by the time a client meets our minimum wealth criteria, they already know how to plan their finances." What her colleagues say is true, says D'Angelo—the neediest clients tend to have issues that require an extraordinary time commitment, making it tough for them to afford planning help.

ALTERNATIVE ASSETS
But as any Boomer can tell you, when there's a will there's a way. "Boomers may not have cash savings but they do own assets and have alternative sources of income," says D'Angelo.

For example, some of her clients reinvented themselves and became wealthy. "One client worth $6 million today was a single parent mom whom I met in a domestic violence shelter 20 years ago. She started a house cleaning business which has paid off big time." This advisor cites three other clients today worth $7 million, $18 million, and $30 million, all of them invested mostly in real estate. D'Angelo says all three would still be 100% invested in real estate if she hadn't convinced them to diversify. "If I had not been willing to work with them before they had investable assets, I would not have their business today," she muses.

Thinking twice about marketing to lower-echelon clients is one way to capture more Boomer customers and fill an important societal role. Another is getting in tune with aging Boomers' realization that there is more to life than accumulating possessions and debt. Boomers value long-term relationships, one-stop shopping, and dealing with Boomer advisors.

More and more Boomers are also looking to jettison frenzied, consumer-focused lifestyles and live their dreams instead. In the years ahead, clients are expected to build the most solid relationships with planners who can get on board with that attitude.

"This profession is moving toward more holistic kinds of planning," observes Deena B. Katz, CFP, president of Evensky & Katz in Coral Gables, Fla. Katz, a fee-only advisor whose target market is composed of individuals with $3 million to $10 million in investable assets, sees maturing Boomers wanting to simplify their lives and build third and fourth careers for the sheer pleasure of it.

These Boomers are going to start thinking about divesting themselves of the monster homes they may have purchased, and move into smaller dwellings in non-urban areas, possibly near colleges and universities where they can teach part time, or take classes. They're going to look for places where they can embrace community and nurture the spiritual life.

Most importantly, while such changes will certainly help many Boomers to make ends meet, it is the promise of a more satisfying lifestyle that will provide the incentive to Boomers of all stripes, says Katz, not the fear of ending up with too little, thanks to Boomers' undying belief that they really can have it all—and their resistance to hearing the word "no."

"Boomers are going to downsize because they want to be able to control their lives and environments," Katz concludes. "They're not going to do it for the 'right reasons' typically offered by financial planners—like the fact of having support themselves well past the age of 65."

Dychtwald has been singing a similar tune. When his San Francisco-based firm, AgeWave, conducted a survey of 1,000 people 55 and older, asking what they look for in a financial advisor, the group's top answer was "helps me visualize my future."

As Dychtwald has explained, advisors need to be asking questions like 'Are your parents alive? Are they healthy? Will you have to support them if they need elder care? Have you thought about whether you want to retire? Would you like to join the Peace Corps when your kids leave the nest? Would you consider relocating to a region of the country where you could get by on less money?'"

"Members of this new generation of wealth accumulators aren't oriented toward money in and of itself. Instead they want help figuring out where they might be heading, what the lifestyle choices are and what financial tools and solutions will be required to get them there," he has written.

D'Angelo of Fiscal Conditioning agrees that the enlightened generation Katz and Dychtwald describes is alive and well. Recently she and her husband attended a semi-formal dinner dance. "The band played all 1960s music and everyone who attended was a Baby Boomer," she says. "There was a definite range of economic capacity ranging from financially comfortable to wealthy.

Every single person I spoke to was heavily engaged in volunteer work. Most were going back to school. I was the only one still working full time. The prevailing attitude was 'My life is two-thirds over. I have worked very hard for what I have and now I am going to enjoy the last third of my life to the fullest.' The retirement nest egg was referred to as 'FU' money."

"We were the original flower children," notes Katz. Boomers have come to realize that playing the role of "uber-consumer" hasn't bought them anything but junk, she says. Dr. Spock, it seems, got it right. Now, it's the advisors' job to help them.