National Underwriter™

National Underwriter™

Prospecting the Retirement Market?
Know Your Senior, Serve Your Client
By Jim Connolly
07/15/2002

For prospectors in the financial services industry, the baby boomer market may be something akin to the "Yukon Gold Rush," contends Ken Dychtwald, a Ph.D. who has studied and written about aging. But without the right customer relations skills, the gold pan may come up empty, he cautions.

Dychtwald consulted on a recent survey on the senior market put out by SunAmerica, Inc., a Los Angeles unit of American International Group.

In his own experience, he says, no one who has sold financial products to him in the past has called him during the market downturn of the last two years. This is not the kind of skill that he thinks financial advisors should employ.

But even if advisors do regularly communicate with clients who are seniors, they better not have a one approach fits all way of reaching out to clients.

"The notion you'll reach a point in your 60s where you will cease working is dead. It's been dead for a few years," he explains.

Diversity in the senior population is something the SunAmerica survey examines. It sorts seniors into four categories: ageless explorers; comfortably contents; live for todays; and sick and tireds. The survey says these four groups represent personality types that respectively: seek new challenges; seek to live an enjoyable traditional retirement; want to seek new challenges, but have lived for the moment at the expense of their retirement plans; and, are not financially prepared for retirement.

Jay Weintrob, AIG SunAmerica president and CEO, notes the correlation between satisfaction and preparation for retirement.

"Are Americans realistic? Probably, the answer is no," says Weintrob.

They are saving, but they are not saving enough, he adds. There is a general view that someone else will take care of them, but that is an "uninformed view," Weintrob continues. "Very few people, in a disciplined way, work with a financial advisor."

In April, Americans saved $ 218.7 billion or a 2.8% rate compared with $ 233.6 billion or 3% in March 2002, according to the Bureau of Economic Analysis of the U.S. Department of Commerce.

Regardless of income, if an individual is not saving for retirement, then there is going to be a problem in retirement, says Mike Crifasi, a certified financial planner with CEI Financial Planning in Atlanta.

"It is tough to make it up after you reach the age of 62," Crifasi says. One reason, he explains, is that taxes and reduced benefits are imposed on income for those who receive Social Security.

That is wrong, according to Crifasi, and it is something he says has moved him to run for a seat in the Georgia legislature this fall.

Because of taxes and reductions in benefits, "there are lots of elderly people who drop out of the work force," he adds.

On the issue of reduced benefits, the Social Security Administration offers guidance. It says that if an individual is under full retirement age and receiving benefits, the system deducts $ 1 in benefits for every $ 2 earned above the $ 11.280 limit. In the year of retirement, currently age 65, $ 1 in benefits will be deducted for every $ 3 earned above a $ 30,000 limit before the individual turns 65. After age 65, there is no limit on earnings. The full retirement age is 67 for those born in 1960 or later.

Time, however, can help offset Americans' tendency to sprend rather than save.

As Steve Summerlin, a financial advisor with Financial Advisors Inc., Gainesville, Fla., puts it, "compounding interest can be an enemy or an ally. The determining factor is time. If you start saving at 49, 50 or 51 as opposed to 39, 40 or 41, you have chopped a lot of money off of the back end by procrastination."

To illustrate, Summerlin recounts a couple in their late 50s who met with him in anticipation of retirement at age 62.

"I waited for the big number," he says, but none came. The couple's one major asset is the house. A decision was made that they would work until they were 70 and save as much as they could, he adds.

But, he continues, "people don't understand the time value of money." That is why, Summerlin adds, a financial plan is important. It shows and "there is nothing better than seeing with your eyes."

Meeting with clients is important because you can actually show them with visuals as well as words, says Howard Brachfeld, a producer with Wealth Advisory Group of Guardian Life Insurance Company, New City, N.Y.

It is easy to visualize a man or woman at work, but it is also possible to think of money or capital at work, according to Brachfeld. For instance, he asks if living longer means that money has to work longer or harder.

Making dollars work harder should complement efforts to make sure hard earned dollars are not lost to illness.

For clients with children, according to Brachfeld, the realization starts when the children reach adulthood. The mindset changes from "what will happen to them" to "what will happen to us and how can we avoid being a burden on them," he adds.

That is accomplished in two ways, according to Van Echols, a certified financial planner with MML Investors Services, Lubbock, Texas.

One way is determining the withdrawal rate on retirement assets once retirement starts so that it is sufficient to last the length of an individual's life, he explains.

There is a "delicate balance" that needs to be achieved between providing for current and future income, he continues.

For those clients who might not have sufficient assets to take them through retirement, there are certain steps that can be taken, Echols says.

In such cases, it is important to establish a steady stream of base income by using immediate annuities that guarantee a life income, Echols adds.

The second component, according to Echols, is long term care issues and threat to wealth. "And that's what LTC is," he adds.

LTC was an issue raised by all the advisors contacted. Crifasi suggested clients consider prepaying premiums when possible, so the contract is more affordable, and also buying policies for children if the client can afford it.

He tells his own story to make the point: His daughter had an accident that left her in a hospital bed for six months before she recovered. This experience convinced him, he said, to purchase policies for both his daughters and their spouses.

The story ended happily for Crifasi's family but these planners agreed that failure to include LTCI in a retirement strategy can not only scuttle carefully laid out plans but more importantly, can lower seniors' quality of life.

Some Friendly Advice Offered By Retirement Planners

* Buy long term care insurance early, and when possible, prepay premium and buy policies for family members. -- Mike Crifasi, a certified financial planner with CEI Financial Planning in Atlanta.

* "Compounding interest can be an enemy or an ally. The determining factor is time." -- Steve Summerlin, a financial advisor with Financial Advisors Inc., Gainesville, Fla.

* When children reach adulthood, parents' mindsets change from "what will happen to them" to "what will happen to us and how can we avoid being a burden on them." -- Howard Brachfeld, a producer with Wealth Advisory Group of Guardian Life Insurance Company, New City, N.Y.

* A withdrawal rate needs to reflect a "delicate balance" between providing for current and future income. -- Van Echols, a certified financial planner with MML Investors Services, Lubbock, Texas.