Financial Advisors Receive Words to The Wise As Boomers Tap Retirement Funds
NEW YORK -- Financial advisory firms that are not ready to advise on the distribution phase of retirement funds could see a considerable outflow of assets as the first wave of baby boomers enter retirement this year, according to a new report from Celent.
Beginning this year, 73 million baby boomers will start to retire or qualify for Social Security, putting $19 trillion in assets--$12 trillion of which are currently in retirement accounts--into liquidation mode, according to Celent's "Retirement Income Distribution and Planning" report authored by Robert Ellis, senior analyst. Traditional pension programs will continue to decline as a retirement income source, meaning individuals will be even more responsible for their retirement and healthcare costs. On average, half of all retirees need a post-retirement plan that considers a 30-plus year retirement horizon, the data showed.
Decisions about longevity and health, heirs and bequests can also affect distribution. For married couples aged 65, there is an 83.7% chance that one spouse will live to 85, and a 63% chance of living to 90. Poor distribution decisions, combined with the lack of assets to distribute, have impacted retirement as some older workers are forced back into the job market.
According to the study, better meshing of Social Security calculators and mortality and health tables can help financial advisors deal with distribution concerns. Products need to be simplified and made more cost-effective, especially variable annuities, reverse mortgages, and long-term care insurance, before they can enter the mainstream. The costs for these products are too high for clients, and advisors are uncertain as to their responsibility and liability for selling these high-fee products, the report read.
Errors in the distribution phase are significantly harder to fix than errors in the accumulation phase, where more savings and different allocations have more time to effect portfolio improvements, Celent said.
"It would not be surprising to see more and more lawsuits against advisors for failing to assist clients appropriately in the distribution phase, such as in cases where their assets run out before death," Ellis said in the report.
The bottom line appears to be that advisors need to get comfortable with their new roles in this new century, Celent suggested.
"No longer simply planners of cash flows, they are now career counselors, health questioners, and life aspiration coaches," the report read. "While the sizes of wealthier clients' asset pools support greater training and added specialized staff, this same need is just as significant, if not more so, for the mass market and mass affluent, who really do risk running out of money."