Kathleen Casey-Kirschling, widely considered to be the first baby boomer, did more than merely kick off the massive cohort's first step into the retirement years as she turned 65 on Dec. 31, 2010.
She also revolutionized the way that financial advisers approach their thinking toward day-to-day business when helping clients retire. Enter the transition from accumulating assets and investing to boost principal, to protecting the nest egg and taking income during retirement.
“One thing that's more apparent is the change in focus for the market, this realization that there's a large new cohort that needs a different set of services,” said David M. Blanchett, head of retirement research at Morningstar Investment Management. “In the past, advisers could focus on building portfolios, but the importance of building income strategies is becoming more relevant because more people need that service.”
PHOTO GALLERY 15 transformational events
In theory, the shift toward income distribution sounds like a natural change for advisers, but many are finding that in practice, the learning curve has been steep.
For one thing, those first boomers who hit 65 immediately after Ms. Casey-Kirschling were heading into retirement fresh off of a
recession and just after nearly two years of plummeting stock market returns. At the same time, the bond investments that many had viewed as safe and reliable were being challenged by slumping interest rates — rates that continue to weigh on returns and chip away at the income on which retirees were counting.
“Retirees are heading into one of the worst times to create income from the portfolio due to interest rates,” said Corey Schepper, an adviser at Bloomfield Hills Financial. “They're seeing the true yield from these intermediate and corporate bonds, and this isn't enough income for them.”
As a result, advisers are making a transition at their practices. Annuities, real estate investment trusts and higher-yielding blue-chip stocks are now part of the recipe, Mr. Schepper said.
Even that mix has changed as insurers back off of variable annuities with the highest potential for income creation.
“Being a master of retirement income planning is more complex than helping someone figure out how much to save for retirement and how to invest in order to get there,” Mr. Blanchett said. “That pot of money has to last as long as you're alive.”
Aside from contending with low interest rates and high stock market valuations, advisers have to figure out when clients should start taking
Social Security benefits and when or if they should buy long-term-care insurance, Mr. Blanchett said.
Health care costs during retirement have thrown another monkey wrench into those plans, particularly as retiree health care plans at the workplace shift the funding responsibility to the retired workers, Mr. Schepper said.
Boomers' expectations of life during retirement also have sobered since the
recession as they realize they need to live off their reduced savings for close to 30 years. Many are finding that if they want to preserve their lifestyle, stopping work at 65 and collecting
Social Security at 67 are no longer the answers.
“It used to be, 'Here's your gold watch and out you go,'” said Meg Green, chief executive of Meg Green & Associates Inc.
“That's not so today,” she said. “You don't hit those ages and retire unless you can afford to do it.”
Clients are coming around to the idea of a new retirement — one during which they continue to work as long as they can, ideally doing something they love.
“Many people got their rear ends handed to them [during the
recession],” she said. “This is about having reasonable expectations and living within your means, perhaps to age 90 or 95.”
